‘Reserve bank stuck between weak growth, rising inflation, unlikely to increase repo rate’

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Mumbai. UK-based brokerage company Barclays said on Tuesday that the Reserve Bank is “tied” between an uptick in inflation and its rise to 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 per cent in May. In such a situation, questions are being raised as to how long the central bank will tolerate the high limit of inflation.

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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 price rise. At the same time, it will show its commitment to contain inflation in the medium term.

He said that a return to 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 per cent 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. (agency)

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Bhagyashree Soni
Bhagyashree Soni
Bhagyashree Soni is a software engineer with soft writing skills. She is a degree holder from the International School of Entrepreneurial Leadership. She has been a state-level badminton champion and chess player. A woman with a forthright attitude enjoys her writing passion as her chosen career. Writing in the context of feminism, social-cause and entreprenurship is her forte.
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