Hike rates

RBI likely to raise rates from first quarter of 2022: report

Brokerage firm Nomura says RBI may change monetary policy in Q1 2022

The Reserve Bank of India (RBI) may change its monetary policy and raise lending rates from the first quarter of 2022, Japanese brokerage firm Nomura said on Monday.

The apex bank will start moving towards normal cash flow from this month, she said, adding that this will narrow the gap between the rate at which it funds the system and the rate at which it absorbs excess cash flow in December.

A section of pundits saw RBI’s move to reduce excess liquidity through stated targets as a first step towards normalizing its policy stance, which has been quite dovish since last year, for s to soak up the pressures created due to the outbreak of the coronavirus pandemic, the brokerage firm’s report noted.

Nomura raised its consumer price index inflation target for 2022 to 5.2% from 5% previously.

Demand remains strong in India, but there are supply-side headwinds in areas like chips that are troubling the auto sector and coal shortages that threaten to plunge parts of the country into darkness, a he declared.

There has been a severe shortage of coal in the country and power companies are facing the prospect of importing coal at high costs and with power demand expected to increase in the coming days due to the festival season, supply-side constraints could pose downside risk to growth momentum, Nomura warned in its report.