The Reserve Bank of India (RBI) is expected to maintain the benchmark interest rate at its upcoming monetary policy review meeting, scheduled for June 5 to 7, according to experts. This decision comes in the wake of persistent inflation challenges and a gradual pick-up in economic growth, which have influenced the Monetary Policy Committee (MPC) to likely hold the repo rate steady at 6.5 percent.
The meeting, chaired by RBI Governor Shaktikanta Das, will take place shortly after the announcement of the Lok Sabha election results on June 4. The outcome of this policy review will be revealed on June 7. The central bank last increased the repo rate to its current level in February 2023 and has maintained it through six bi-monthly policy meetings since.
Should the RBI decide to keep the interest rate unchanged again, it would mark the eighth consecutive time the repo rate has been held steady. This trend reflects the central bank’s cautious approach amid mixed economic signals.
Madan Sabnavis, Chief Economist at Bank of Baroda, noted that economic conditions have remained relatively stable since the last policy review. He highlighted that high-frequency indicators, such as the Purchasing Managers’ Index (PMI) and Goods and Services Tax (GST) collections, suggest that economic growth is on track. However, inflation concerns persist, particularly due to the impact of the ongoing heatwave on vegetable prices. While the India Meteorological Department (IMD) has forecasted a normal monsoon, it remains prudent to monitor its progression closely.
“Under these conditions, a status quo on policy rate and stance may be expected. It would be interesting to see, however, if RBI changes forecasts of GDP and inflation for FY25,” Sabnavis opined.
Sanjay Nayar, President of the industry body Assocham, echoed this sentiment, stating that the central bank is likely to keep the repo rate unchanged as retail inflation remains above the target of 4 percent. He added that although inflation is receding, the macroeconomic picture will become clearer only after the monsoon season concludes in September.
“The government has mandated the Reserve Bank to ensure the consumer price index (CPI) based inflation remains at 4 percent with a margin of 2 percent on either side,” Nayar noted. In April 2024, retail inflation based on the CPI was 4.83 percent.
Aditi Nayar, Chief Economist at ICRA, supported the likelihood of maintaining the current rates, citing recent inflation data and commodity price outlooks. She mentioned that the robust GDP growth in Q4 FY2024, which pushed the annual GDP growth above 8 percent, reduces the probability of a stance change before August 2024, followed by a potential rate cut in October 2024, barring an exceptionally favorable monsoon season.
Ranen Banerjee, Partner and Leader of Economic Advisory at PwC India, suggested that the MPC would likely maintain the status quo due to uncertainties surrounding inflation, commodity prices, and higher oil prices. “There is no urgency on rate action too as the growth is sustaining and the US economic data also suggests that the US Fed will not cut rates before October 2024,” he said, adding that any action might come through a reduction in the Cash Reserve Ratio (CRR) to address liquidity challenges.
Manish Jaiswal, Group COO at Eldeco, also expects the RBI to keep the repo rate steady, emphasizing that this policy stability is crucial for the real estate market, making homes more affordable and fostering growth. “Stable home loan rates improve consumer confidence and enable more informed investment decisions, thereby driving real estate sector growth and contributing to India’s economic progress,” he stated.
The MPC, responsible for setting the policy repo rate to achieve the inflation target while supporting growth, comprises three external members and three RBI officials. The external members include Shashanka Bhide, Ashima Goyal, and Jayanth R Varma. In an off-cycle meeting in May 2022, the MPC raised the policy rate by 40 basis points, followed by several hikes, cumulatively increasing the repo rate by 250 basis points between May 2022 and February 2023.
As the June policy review approaches, the consensus among experts indicates that the RBI will likely maintain its cautious stance, keeping interest rates unchanged to balance inflationary pressures with economic growth.
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