RBI's MPC is likely to keep interest rates unchanged despite inflation

 Six-member Monetary Policy Committee is meeting amid weak indicators raising doubts about the economy's ability to sustain a nascent recovery

India’s monetary policymakers are likely to leave interest rates untouched for a seventh straight meeting, as their focus remains more on fixing a fickle economy than on controlling stubborn price pressures.

The Reserve Bank of India’s six-member Monetary Policy Committee is meeting amid weak indicators raising doubts about the economy’s ability to sustain a nascent recovery. Some parts of the nation, where the fast-spreading delta variant was first identified, are still battling a rise in Covid-19 infections with researchers warning of an impending third wave of the pandemic.

All 21 economists surveyed by Bloomberg as of Wednesday afternoon expect the MPC to leave the benchmark repurchase rate unchanged at 4% on Friday. While the RBI is widely expected to announce another tranche of its so-called government securities acquisition program, bond traders will be watching for any cues on return to policy normalization.

For now, Governor Shaktikanta Das has maintained that growth is the main challenge and that inflation, while sticky, is only a “transitory hump.”

Here’s what to watch for in the MPC decision to be announced by Das in Mumbai on Friday morning:

Inflation ‘Chameleon’
The governor is likely to bump up the RBI’s inflation forecasts, given the ripple effect of a sustained rise in input costs along with high fuel taxes.

Headline inflation is already hovering well above the upper tolerance limit of the central bank’s 2%-6% target band, and some economists see the measure breaching the RBI’s 5.1% outlook for this fiscal year to end up in the region of 5.5%, or thereabouts.