What exactly are you pencilling in in terms of the monetary policy action as well as commentary?
On the policy, tomorrow we are expecting MPC to keep the policy rates unchanged with an accommodative stance with the main message that the support to growth continues at this point in time. In fact, we expect the MPC to retain the focus on liquidity recalibration. In the last policy, they had announced a larger quantum of variable reverse repo rate auction and so even the policy statement should be focussing on resorting to may be a larger quantum of VRR and partial tapering of GSAP purchases hopefully in the December quarter.
So we are not building in any change in the policy rate. In fact, we are only expecting the first reverse repo rate hike to happen only in the March quarter of 2022 accompanied by a shift in monetary policy stance to neutral.
In terms of policy statement, definitely the next three inflation prints are going to surprise positively because of the base effect turning favourable. It is going to provide relief to the MPC members at a time when there is a lot of pressure looking at other EMs to hike policy rates because the market is getting worried about inflationary pressures, not right now but beyond as we move into the next year.
I would say they are likely to use this as an opportunity to continue to support growth specifically at a time when the festive season demand momentum is expected to come back and support economic recovery. So we are not expecting any change in the growth forecast as of now in the upcoming policy review tomorrow.
