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Below is quote on RBI policy expectations by Heena Naik, Research Analyst - Currency, Angel One Ltd

*What to expect in the upcoming RBI Monetary Policy?*

In the upcoming RBI Monetary Policy Meeting which is said to be released on 8th Oct’21 at 10:00 am, there are high chances that the MPC could keep a status quo on key policy interest rates and accommodative stance. This time the committee has a lot on its platter to deal with and make necessary amendments to the policy. 

The domestic conditions are showing gradual improvements while increased pace of vaccination is boosting consumer sentiments and confidence. At the same time, there are other international factors such as a crude price hike due to shortages in China and the UK along with the US Feds indication towards sooner-than-later tapering. All of these factors, shall prompt the RBI to adopt a wait and watch approach until they see a clear picture. 

With respect to liquidity, India’s liquidity surplus has widened to record highs and the RBI is seeking to rein in the excess liquidity. The liquidity surplus averaged Rs 7.9 lakh crore in September 2021, a notable increase from the surplus of Rs 4.9 lakh crore during April-June 2021. 

In the last policy meet, RBI had announced four variable reverse repo rate auctions to mop up some of the excess liquidity in the system. This time too there is a possibility that the RBI may absorb some of the surplus liquidity and begin the normalisation of the pandemic stimulus.

Investors shall pay a close attention towards how the RBI addresses underlying and emerging concerns such as continued rise in oil and other commodity prices which could pressure inflation in the coming months coupled with the rise in bond yields and the surplus liquidity conditions. RBI Governor’s speech regarding the same shall be closely watched.

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