STATE OF PLAY: Reserve Bank Of India To Raise Reverse Repo

The Reserve Bank of India will look to mop up liquidity by raising its reverse repurchase, or repo, rate on Thursday while keeping the policy rate steady as it looks to keep a fast-paced economic recovery intact at its latest Monetary Policy Committee meeting.

A likely 20 basis points increase in the reverse repo rate, which the RBI uses to absorb cash from commercial banks, from the current 3.35% will narrow the gap with the benchmark repo rate expected to remain unchanged at 4.0%. A rate hike in the repo rate may not come in the policy rate until 2023, though, see: MNI BRIEF: Reserve Bank Of India Keeps Policy Rate Steady.

India will also report inflation data for January on Thursday, which is expected to show an over 6% rise for the capacity-constrained economy with food the key driver and placing it above the central bank's top end target range.

The economy expanded just over 9% for the fiscal year ended March 31 - and the government wants to see it expand 8% to 8.5% this year through fiscal stimulus and accommodative monetary policy.

Policy normalisation however is not until later this year, but the RBI also must manage a record INR14.95 trillion government borrowing programme for the year started April 1 after ending last year its Government Securities Acquisition Program that sold INR2.2 trillion from April to September 2021.

That means direction to the broader market from the RBI on the pace of a purchase programme and open market operations as banks are now flush with government paper.