According to experts, it is anticipated that the Reserve Bank of India (RBI) will maintain its current policy repo rate without any changes, keeping it steady at 6.5 per cent, in the forthcoming announcement on June 8.
This projection is based on the easing of retail inflation in April and the potential for further decline, suggesting that the previous policy rate actions have been effective. The Monetary Policy Committee (MPC), led by RBI Governor Shaktikanta Das, will hold meetings from June 6-8 to discuss the matter.
In the previous meeting of the Monetary Policy Committee (MPC) held in April, the Reserve Bank of India (RBI) chose to halt its cycle of increasing interest rates and kept the repo rate unchanged at 6.5 per cent. Before that decision, the central bank had implemented a series of repo rate hikes totalling 250 basis points starting from May 2022, to control inflation.
The Monetary Policy Committee (MPC) meeting takes place in a context where consumer price-based (CPI) inflation has shown a decrease, with April recording an 18-month low of 4.7 per cent. Governor Das has suggested that the inflation figures for May are anticipated to be even lower. The announcement of the CPI for May is scheduled for June 12.
Madan Sabnavis, Chief Economist at Bank of Baroda, expects the RBI to continue the interest rate pause and retain the repo rate at 6.5 per cent. He points to the lower-than-expected April inflation and the anticipated further decline in May as reasons for the potential pause. Sabnavis believes that the previous repo rate actions have had an impact on inflation, providing support for a pause in rate changes.
While interest rates are expected to remain unchanged, Sabnavis suggests that the policy stance will continue to signal a withdrawal of accommodation, considering the increase in liquidity resulting from the announcement regarding the exchange of Rs 2,000 notes.
In addition to inflation, the Reserve Bank of India (RBI) will closely observe the advancement of the monsoon season and assess the potential consequences of El Nino on the Kharif harvest and price levels. Experts suggest that there may be a 25-50 basis points cut in the repo rate later in the year, likely after October.
The government has set a mandate for the RBI to ensure that CPI inflation remains within a range of 2 per cent to 6 per cent, with the target inflation rate being 4 per cent.
Bankers also anticipate the central bank to continue the pause in the upcoming policy announcement. They highlight that the repo rate has already been increased by 2.5 per cent and that inflation remains moderate.
The ultimate determination made by the RBI will be influenced by a range of factors, encompassing economic data, patterns in inflation, global economic conditions, and the existing challenges at hand.
Saket Dalmia, President of PHD Chamber of Commerce and Industry, believes that maintaining the status quo will support the country’s demand trajectory and sustain GDP growth.
Ramnath Krishnan, Managing Director & Group CEO of Icra, expects the RBI to extend the pause in June, considering the easing inflation readings in April. He also emphasizes the importance of liquidity management, particularly the impact of the reintroduction of Rs 2,000 notes into the banking system.
The MPC consists of six members, including experts in economics and finance. The final decision is made collectively, with the RBI Governor chairing the meeting.
Overall, experts believe that the RBI will maintain a pause on the policy repo rate, taking into account the easing inflation and the need to support economic growth.
