Reserve Bank of India likely to stand pat in December

The Indian central bank, Reserve Bank of India, is set to meet later this week. According to a DBS Bank research report, the RBI is likely to pause on rates. Soft growth but accelerating inflation has left policymakers in a fix, while non-rate measures are being tapped to anchor financial conditions.

Inflation has consistently remained beyond the upper end of the 2-6 percent target range every month in 2020, except March, accompanied by sticky core inflation. The views of the MPC regarding liquidity might assume more importance, as a systemic surplus depresses short-term rates.

“Sustained intervention in the FX markets has added to this surfeit (US$93bn jump in reserves), raising concerns at the margin over a) inflationary impact; b) how long the rupee can buck the regional appreciation trend; c) risks of risk mispricing”, added DBS Bank.