RBI set to hold the repo rate: Finder’s Repo Rate Forecast Report

RBI

The Reserve Bank of India (RBI) is set to hold the repo rate next week, according to 94% of the 18 panellists on Finder’s RBI repo rate report.

RBL Bank chief economist Rajni Thakur says the Bank will and should hold the rate while it waits for clarity on growth and inflation trends.

Other panellists, including India Ratings and Research chief economist, Devendra Kumar Pant, noted that while retail inflation has declined, core inflation remained high.

“High core inflation at a time when demand is weak is a concern and should be watched carefully,” he said.

ANAROCK Property Consultants chairman Anuj Puri says inflation is being gradually tamed but not nearly as much as is needed.

“Increasing the cost of borrowing can negatively impact the fledgeling roots of revival, and lowering them would not achieve much more than what is currently being achieved,” he said.

Just one economist, Equity99 market strategist Rahul Sharma, thinks the rate will and should increase by 20 basis points ahead of the Budget announcement.

Economic recovery

More than three quarters of the panel (78%) say the economy is recovering faster than expected, in agreement with a recent report from the RBI.

Mirae Asset Capital Markets economist, Achala Jethmalani, says despite having seen the world’s most stringent lockdown, India has seen a quick bounce back in economic activity.

Aditya Birla Group senior economist Udit Kumar believes almost all sectors are already nearing pre-COVID levels.

“Looking through the leading indicators, suggests that factors are increasingly nearing the pre-COVID levels except for [the] services sector. Once the vaccine drive is complete, the services sector may resume the trajectory. All this could happen around [the] second half of calendar year 2021,” he said.

Just under a third of panellists (29%) say the economy is set to see positive GDP growth by April this year, while nearly half (47%) expect recovery to happen on an even faster timeline.

ICRA Limited principal economist Aditi Nayar expects the economy to exit the recession in the current quarter and Bajaj Finance Ltd national lead of economic research Sharad Kumar says recovery is already underway.

“The recovery has already started and there are indication[s] for that. Statistically the lower base of Q1FY21 will play a role in turning Q1FY22 positive,” he said.

Axis Capital chief economist Prithviraj Srinivas also expects recovery in Q1, noting positive growth data from December.

“GST collections have growth +7.7% YoY in December quarter and portend positive growth for India’s GDP one quarter earlier than expected,” he says.

However around a quarter of panellists (24%) say recovery will be slower than these forecasts.

Ahmedabad University assistant professor, Amol Agrawal, expects to see economic recovery by mid 2021.

“Economic data is still very uncertain. Some indicators indicate a faster recovery and others indicate the opposite. The IIP and core sector data has contracted again in [the] last two months.”

Roha Asset Managers economist Gauri Sharma gave a timeline of recovery by late 2021, noting that while we have seen resilient performance, it’s not yet clear if the recovery in demand will be long lasting.

“There are some sectors which are being impacted by the spread of the new strain in countries like [the] UK and though the vaccine is now out, uniform and equivocal distribution is critical,” she said.

Overall, 28% of panellists expect a V-shaped recovery, 17% say either U or W shaped recovery, and 10% expect recovery will take the shape of a Z.

Other shapes of recovery (28%) mentioned by panellists include a K or Nike swoosh.
You can view the full report here: https://www.finder.com/in/rbi-repo-rate-forecast

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