RBI’s Monetary Policy Committee (MPC) Meet has commenced their 3-day meeting on Wednesday, and are due to announce their policy decision on Friday. Notably, most analysts are not expecting a rate cut, as in the previous policies.
India is facing a unique situation, where there is high inflation and low demand, which normally points to stagflation. Both retail and wholesale price inflation has been shooting up. Retail inflation in Oct stood at a robust 7.61 percent, the highest in six years (since May 2014), and way above the tolerance levels of the Reserve Bank of India.
On the other hand, the economic growth declined by 7.5 percent in the September quarter of the current fiscal. Also, with the nation now showing two consecutive quarters of contraction, the country remains in recession.
Also, WPI data coming in also does not point to the possibility of any improvement. "WPI data did not reveal any information that would build the case for a rate cut in December 2020. In our view, the MPC is likely to stay on hold in at least December 2020, if not in February 2021 as well. Overall, the WPI inflation is expected to remain stable in the next print, before recording base effect related volatility over the rest of this fiscal, " ICRA had said post the release of the WPI data.
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