New Delhi, June 19 (IANS): The Reserve Bank of India repo rate is expected to remain unchanged in FY 22, Emkay Global said in a report.
A lower repo rate, or short-term lending rate for commercial banks, will lower the cost of interest on auto and home loans, paving the way for growth.
However, a lower repo rate could also trigger inflation.
Earlier this month, the central bank‘s Monetary Policy Committee (MPC) voted to keep the repo rate, or short-term loan rate, for commercial banks at 4%.
Likewise, the repo rate was kept unchanged at 3.35 percent, and the Permanent Marginal Facility (MSF) rate and “bank rate” at 4.25 percent.
The MPC result was widely expected as India is suffering from a massive spike in Covid-19 infections.
“We do not expect any rate action in FY 22. We believe the RBI’s focus on keeping term premiums low will accelerate as global financial conditions may start to gradually tighten. during the year, ”Madhavi Arora, chief economist, Global Financial Service said in the report.
“We also expect core inflation to remain high, above average and comfortably above 6% on average in FY22. That said, the RBI can still take comfort in the fact that the headline inflation could still be below 6% on average in FY22 and could thus justify their political accommodation. “
Regarding bond yields, she cited that in the short term, “we are neutral on bonds amid the active support from the central bank anchored on the 10-year benchmark paper.”
“However, we are seeing yields increasing in an orderly and gradual fashion at S2FY22.”
“We expect the yield curve to flatten and the benchmark 10-year yield to be between 6 and 6.40% for the remainder of fiscal 22.