RBI MPC Policy: ETMarkets Investors’ Guide: Omicron or inflation: What will drive RBI’s policy decision? | The Economic Times Podcast

Money markets, government bonds and the Indian currency market are abuzz with speculation as to whether the RBIs Monetary Policy Committee will formally commence on the process of normalising monetary policy through a reverse repo hike on Wednesday.

While the Omicron strain of the coronavirus poses a fresh risk to economic growth, the world’s largest economy is showing concrete signs of lifting interest rates; a factor which may pressure the Indian central bank to shift away from ultra-loose monetary policy.

ETMarkets’ Bhaskar Dutta caught up with Aditi Nayar, Chief Economist at rating agency ICRA to gauge how the Monetary Policy Committee may respond to the contrasting elements of upside risks to inflation and a fresh shadow over growth prospects.

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Q. Most economists are predicting a status quo from the MPC on Wednesday as the Omicron strain presents a new element of uncertainty when it comes to growth. What are your expectations?

Q. Money market rates have by and large adjusted to the possibility of the RBI narrowing the LAF corridor through a reverse repo hike. Do you expect fresh steps on reining in surplus liquidity in the banking system?

Q. Going by the Jul-Sep GDP numbers, it seems likely that the RBI will maintain its forecast of 9.5% GDP growth for the current year. What are the headwinds and tailwinds to this projection in your view?

Q. US Fed Chair Jerome Powell struck a markedly hawkish note on bond tapering and inflation last month. Would that pressure the RBI to act similarly? How would the rupee fare in the event of a sooner-than expected normalisation of US monetary policy?

Thank you Bhaskar and Ms Nayar for a very intriguing conversation.

That’s all in this week’s special podcast. Do keep checking this space for more interesting content and take time out to follow our market podcasts twice every day.