The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC), which began its three-day meeting on Wednesday, is expected to keep key policy rates unchanged in the first bi-monthly policy review of the fiscal year.

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Following the surge in crude oil and commodity prices, analysts believe the MPC will alter its growth and inflation forecasts. The RBI maintained the repo rate at 4% for the tenth time in a row at its previous policy meeting on February 10. The big question is whether the RBI’s accommodating policy will shift. To combat excessive inflation, the US Federal Reserve hiked interest rates last month.

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“We expect the RBI MPC to hold all rates on April 8 while retaining their accommodative stance. We then see the MPC turning neutral in June alongside raising the reverse repo rate by 40 bps, normalising the policy corridor. Thereafter, as favourable base effects fade and CPI inflation rises further, we see the RBI MPC delivering their first repo rate hike of 25 bps in August,” said a Bank of America Securities report.

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In the previous policy, the RBI anticipated real gross domestic product (GDP) growth of 7.8% for FY23. In February, retail inflation was 6.07%.

“We believe that the RBI may maintain the status quo as far as rate actions are concerned. 

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However, it may try to offer some solution for generating demand for the higher-than-expected borrowing scheduled for FY23,” said Prashant Pimple, MD & CIO-debt, JM Financial Asset Management. 

“The RBI would most probably revise the GDP estimates lower on the current disruptions and raise the inflation forecast,” he said.

Commodity prices remain high as the Russia-Ukraine conflict continues. The impact of this on global inflation and growth is being examined by global markets.

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“The rise in Covid-19 cases in China has posed another downside risk to economic recovery. On the domestic front, Rs 6.4 per litre rise in retail fuel prices this month added to the inflation burden on consumers. We expect RBI to take note of this and consider changing its accommodative stance in the upcoming meeting,” said a Bank of Baroda report.

Emkay Global and ICRA economists expect the central bank to strengthen its inflation expectations.

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“In the April 2022 policy review, we expect the MPC to revise up its CPI inflation forecasts, whereas the growth projections for FY23 would be pared. Nevertheless, the MPC is unlikely to sacrifice growth to control imported inflation,” Aditi Nayar, Chief Economist, ICRA said. 

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“The MPC is likely to remain growth supportive for longer than other central banks,” she added.

Analysts anticipate that the RBI will also announce measures to ensure that the government borrowing programme is carried out smoothly.