RBI's December Monetary Policy Review: Here's What To Expect

New Delhi: The Reserve Bank of India's (RBI's) Monetary Policy Committee will present its bi-monthly monetary policy on Wednesday. The Reserve Bank is expected to maintain a status quo on key rates as the new strain of coronavirus - Omicron - adds to the economic uncertainties.

In the last policy review in October, the central bank had kept the key lending rates unchanged for eight consecutive times. The statement will be released by RBI Governor Shaktikanta Das at 10 am.

Here's What To Expect From RBI's December Policy Review:

* A poll - done by news agency Reuters - of 50 economists showed the RBI would hold its benchmark interest (repo) rate at 4 per cent and the reverse repo rate at 3.35 per cent at its December 8 meeting.

* Repo rate is the rate at which the RBI lends money to commercial banks; while reverse repo rate is the rate at which the Reserve Bank borrows from banks.

* The reverse repo rate - was expected to climb to 4.10 per cent by the end of next year with the first hike of 25 bps (basis points) coming in Q1 2022 and a cumulative 50 bps in the following three quarters.

* "We were previously expecting the RBI to hike the reverse repo rate 15-20 bps in December, but given the uncertainty emerging from the new Covid-19 variant, we now expect status quo," Morgan Stanley economists stated.

* Shanti Ekambaram, Group President – Consumer Banking, Kotak Mahindra Bank Ltd., while commenting on the monetary policy committee's deliberations, said, “with the economy on an upswing, led by a surge in consumer demand and ample liquidity, it was expected that the MPC would opt for gradual withdrawal of excess liquidity and a change in its accommodative stance in the December policy. However, the looming threat of Omicron and the uncertainty that it has set in motion means that it is now likely that the committee will keep key rates unchanged."

* "We believe the talks of a reverse repo rate hike in the MPC meeting may be premature as RBI has been largely able to narrow the corridor without the noise of rate hikes and ensuing market cacophony," said an SBI research report.

* If the RBI maintains status quo in policy rates today, it would be the ninth consecutive time since the rate remains unchanged. The central bank had last revised the policy rate on May 22, 2020, in an off-policy cycle to perk up demand by cutting interest rate to a historic low.

* The RBI has been asked by the central government to ensure that the retail inflation based on the Consumer Price Index (CPI) remains at 4 per cent with a margin of 2 per cent on either side.