Mumbai: UK-based brokerage company Barclays said on Tuesday that the Reserve Bank is “tied” between an uptick in inflation and its rise above satisfactory levels and a slowdown in economic growth. In such a situation, there is no possibility of increasing the repo rate till the first quarter of the next financial year. In such a situation, the central bank may increase the repo rate only in the first quarter of the next financial year 2022-23 and will probably maintain a liberal stance in the meantime, Rahul Bajoria, chief economist at Barclays India, said in a report.
The RBI initially made a big cut in the policy rate to support the economy from the impact of the pandemic. After that, the apex bank limited itself to non-traditional monetary instruments to give impetus to the economy. However, inflation picked up later and core inflation reached 6.3 percent in May. In such a situation, questions are being raised as to how long the central bank will tolerate the high limit of inflation.
Bajoria said, “The RBI seems to be tied up between weak growth prospects on the one hand and rising inflation on the other. Given this situation, we believe that the central bank will maintain a lenient stance and rely on the government’s supply-side reform measures to check the price rise. At the same time, it will show its commitment to keep inflation under check in the medium term.
He said that a return to the normal level of monetary policy would depend on a sustained improvement in growth and this situation may not be seen in the current financial year. The brokerage company has projected inflation at 5.4 percent in the current financial year 2021-22, which is higher than the previous financial year. And the current state of price rise is attributed to the rise in commodity prices globally.
