The Reserve Bank of India (RBI) is expected to maintain the current pause on the key interest rate in its upcoming monetary policy review. This decision is based on concerns regarding inflation and the need to stabilize borrowing costs to sustain economic growth, according to experts.
The Monetary Policy Committee (MPC), headed by RBI Governor Shaktikanta Das, will convene from August 8-10. The policy decision will be announced on August 10.
Since February, the borrowing cost has remained stable, with the repo rate unchanged at 6.5%. The rate was raised from 6.25% in February and has since been retained in the April and June bi-monthly policy reviews.
Swarup Kumar Saha, Managing Director of Punjab & Sind Bank, stated that the RBI considers various factors, including global developments. Therefore, it will take into account the interest rate hikes implemented by central banks around the world, such as the recent actions by the US Federal Reserve. Saha believes that if the global situation remains stable, the interest rate is likely to remain unchanged for the next 2-3 quarters.
Tribhuwan Adhikari, Managing Director of LIC Housing Finance, also expressed the view that the central bank is unlikely to make any changes to interest rates in the upcoming policy review. Adhikari believes that the interest rate will remain stable in the near term. The government has tasked the RBI with maintaining retail inflation at 4% with a margin of 2% on either side, which the central bank considers in its bi-monthly policy decisions.
Indranil Pan, Chief Economist at Yes Bank, stated that considering the recent increase in vegetable prices, particularly tomatoes, the MPC is unlikely to make any alterations to the rate and stance. Pan also mentioned the uncertainties surrounding the rate hiking cycle in advanced economies, particularly the US, and its implications for India.
Pan expects the RBI to sound cautious and adopt a hawkish tone in its communication. He predicts that the RBI will raise its inflation projections for the remainder of the fiscal year while keeping the growth estimates unchanged.
India’s retail inflation, based on the Consumer Price Index (CPI), reached a three-month high of 4.81% in June, mainly due to increasing food prices. However, inflation remains below the RBI’s comfort level of 6%. The inflation data for July will be released on August 14.
Pankaj Pathak, Fund Manager-Fixed Income at Quantum AMC, expects the RBI to maintain its policy stance and keep interest rates unchanged. He cites increased inflationary pressures, particularly in vegetable prices, as a reason for the RBI to remain on hold. Pathak anticipates that the RBI may raise its CPI inflation forecast for the fiscal year 2024.
(With PTI inputs)
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Omprakash Tiwary is a business writer who delves into the intricacies of the corporate world. With a focus on finance and economic landscape. He offers readers valuable insights into market trends, entrepreneurship, and economic developments.
