The Reserve Bank and the Monetary Policy Committee face their strongest challenge ever probably when they announce their rate decision and stance on February 9. The danger comes because of a huge, larger-than-expected, government borrowing programme due to the fiscal deficit and a global scenario where central banks are actually tightening the liquidity, and oil is going through the roof.

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CNBC-TV18’s Latha Venkatesh spoke to Pronab Sen, Former Chief Statistician; Sonal Varma of Nomura; Soumya Kanti Ghosh, Group CEA at SBI; Sajjid Chinoy, Chief India Economist at JPMorgan; and Samiran Chakraborty of Citi to try and guess what the Reserve Bank may do on February 9.

The panel is divided on whether RBI will hike reverse repo rate, but united in saying the central bank must give clear guidance on path to normalisation .

On GDP growth, Chakraborty said, “This is going to be one of the most complicated policy decisions for the MPC. The first challenge is a traditional growth inflation trade-off, where most likely the central bank will be revising down their GDP growth forecast, but at the same time, there will be upside risks to inflation, because of the higher oil prices etc.”

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On inflation forecast, Chinoy said, “RBI will be caught in this bind where you are seeing services inflation go up, but you are not getting the anticipated goods disinflation. What does all this mean? There is a hump of inflation in the first four months where it will, between 5.50 or 6 percent, a lot of it is base effects. The RBI will see through that. My senses is we will be living in another year, where inflation settles around 5.50.”

On interest rate, Sen said, “My sense is that the interest rate at the moment is not the relevant measure that companies will be looking at. Just because the interest rate is low in the absence of sustained demand, nobody is going to invest. On the other hand, if there is an expectation of sustained demand, and if there is even relatively high-interest rate, companies may still actually go in for investments.”

For full interview, watch accompanying video...

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(Edited by : Abhishek Jha)

First Published:Feb 4, 2022 11:21 PM IST