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RBI expected to raise reverse repo rate while keeping other rates unchanged: Kotak Mahindra Asset Management Company RBI reverse repo rate

RBI expected to raise reverse repo rate while keeping other rates unchanged: Kotak Mahindra Asset Management Company

India Blooms News Service | @indiablooms | 08 Feb 2022, 06:25 pm

Mumbai/IBNS: The Reserve Bank of India (RBI) may raise the reverse repo rate while keeping the existing repo rate intact in order to reduce the liquidity in the market it had infused to push business activity amid Covid-19 last year, according to economists.

The RBI started its three-day monetary policy committee (MPC) meeting on Tuesday, after being rescheduled following the Maharashtra government's announcement to observe a day of mourning on February 7 following the death of legendary singer Lata Mangeshkar.

Lakshmi Iyer, CIO (Debt) & Head - Products, Kotak Mahindra Asset Management Company said after a shocker for bond yields post-budget, all eyes are now on the MPC meeting.

"Given the mammoth borrowing for FY23, there are hopes for RBI to announce OT(operation twist) which could act as an anchor to long-term bond yields. We expect reverse repo rate to be hiked with other rates unchanged. We do not expect any major tweaks to GDP or inflation forecasts," he said.

Meanwhile, a Reuters poll of economists forecast that the central bank will hike the reverse repo rate - the rate at which it borrows from banks - to 3.55 percent from 3.35 percent, narrowing the gap between the repo rate to 45 basis points (bps), according to a Money Control report.

The repo rate is expected to go up by 25 bps in the subsequent meeting in April, according to a little over half the respondents, while two-thirds expect one more similar-sized increase later in the year.

According to news agency PTI, last week analysts at Barclay's said: "The RBI will hike the reverse repo rate by 0.20-0.25 percent, given its liquidity management actions."

More and more economic experts have been suggesting that the central bank may hike the reverse repo rate because of the surprising hike in the government borrowing announced in the budget.

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