RBI MPC meet: GDP estimate cut, status quo on policy rate; what to expect

The Reserve Bank of India is scheduled to announce the outcome of the Monetary Policy Committee meet on Friday. RBI Governor in his speech on Friday is likely to maintain the status quo on policy rate, and revise GDP estimates with a slight cut. The announcements come after Ministry of Statistics & Programme Implementation (MoSPI) showed in its data on Monday that India's economy grew at 1.6 per cent in the fourth quarter of 2020-21 but shrunk by -7.3 per cent in FY21.

As the country witnesses its worst GDP growth in four decades, all eyes are on the apex bank to announce measures to pull up the economy.

Firstly, the RBI is likely to revise growth projections for FY22, which would be in line with a host of rating agencies, banks and brokerages' estimates. Moody's expects India's GDP to grow at 9.3 per cent from the earlier 13.7 per cent. It later stated that the second wave of coronavirus has raised risks to India's credit profile. SBI Research too lowered its projections from 10.4 per cent to 7.9 per cent.

However, in the April policy review, RBI had retained the FY22 growth estimate numbers at 10.5 per cent.

Additionally, Government Securities Acquisition Programme or G-SAP 2.0 is likely. Two rounds of bond purchases amounting to Rs 60,000 crore have already been done in April and May -- Rs 35,000 crore in April and Rs 25,000 crore in May. Under G-SAP 1.0, the RBI committed upfront to a specific amount of open market purchases of government securities to enable a stable and orderly evolution of the yield curve amidst comfortable liquidity conditions.

Governor Das is also likely to address the impact of the second wave of coronavirus in Friday's speech. The apex bank in its annual report had stated that the impact of the second wave would be limited to the June quarter, with maybe some spillover to July.

Further, the Governor's announcements on inflation would be keenly followed. Wholesale Price Inflation (WPI) climbed to an all-time high of 10.49 per cent in April 2021 on Y-o-Y basis, primarily due to a rise in prices of crude petroleum, mineral oils, the commerce ministry data shows. On a month-on-month basis, WPI inflation saw 310 basis points rise as compared to 7.39 per cent in March. The wholesale inflation was 4.17 per cent in February.

Also read: G-SAP 1.0: RBI to make 2nd G-Secs purchase worth Rs 35,000 cr on May 20

Also read: WPI inflation hits all-time high of 10.49% in April