In the wake of the global panic over the new coronavirus variant Omicron, the RBI is likely to keep the status quo in its upcoming monetary policy and wait for a more opportune time to calibrate the benchmark interest rate to promote growth without jeopardising the primary goal of keeping inflation under control. The Monetary Policy Committee (MPC), chaired by the Reserve Bank Governor, will meet on December 6-8, 2021. The rate-setting panel's decision will be announced on Wednesday (December 8). In October, the central bank kept the benchmark policy rate unchanged.
The RBI is not required to act on the reverse repo rate only in MPC, according to the report. "Also, a change in the reverse repo rate is an unconventional policy tool that the RBI has successfully deployed during a crisis when it moved to a floor instead of the corridor," it continued.
Because of the uncertainty surrounding the new Covid variant, according to a Kotak Economic Research report, the RBI may wait for more clarity before making a rate decision.
If the RBI keeps policy rates unchanged on Wednesday, it will be the ninth time in a row that the rate has remained unchanged. The policy rate was last changed on May 22, 2020, in an off-policy cycle to boost demand by cutting interest rates to a historic low.
The central government has asked the RBI to ensure that retail inflation, as measured by the Consumer Price Index (CPI), stays at 4% with a 2% margin on either side. In August, the Reserve Bank kept the key interest rate unchanged, citing inflationary concerns in its post-monetary policy review.
The central bank projected CPI inflation of 5.3 percent for 2021-22 at its October MPC meeting: 5.1 percent in the second quarter, 4.5 percent in the third quarter, and 5.8 percent in the final quarter of 2021-22, with risks broadly balanced. Inflation is expected to be 5.2 percent in the first quarter of 2022-23.