The rbi monetary policy is expected to keep the benchmark interest rate at 6.5% on Thursday and hold off from cutting it until more macroeconomic data becomes available, according to experts’ opinion.
While the US Federal Reserve has decided not to change rates for now, the bank hinted at loosening monetary policy in the coming months.
Experts said that before changing its stance on interest rates which have remained unchanged since February 2023, RBI would closely follow U.S. monetary path amid ongoing inflationary pressures.
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rbi monetary policy Committee (MPC)
However, even with a high interest rate of 6.5% (repo rate), the Monetary Policy Committee (MPC) may resist slashing rates as economic growth picks up.
MPC led by Governor of Reserve Bank Shaktikanta Das will be meeting on August 6-8. On Thursday, August 8, Das will unveil decision of panel responsible for determining rates.
In its last seven bi-monthly monetary-policy reviews, central bank has maintained repo-rate where it is currently after having upped it to 6.5% only in February 2023.
Still we expect RBI to maintain status quo in next credit policy briefing; still inflation even if starts decreasing numerically over forthcoming months shall be largely due to base effect—Madan Sabnavis Chief economist Baroda bank noted while explaining why he thinks so.
He added that interest rates are not an obstacle for business because growth is stable.
rbi monetary policy No changes?
The Reserve Bank prefers acting once it sees a permanent reduction in prices. No changes are anticipated in GDP estimates but there might be new guidance towards inflation numbers—Sabnavis suggested that this could happen later on.
Chief Economist Aditi Nayar of ICRA stated that strong growth in FY2024 along with 4.9% inflation in the first quarter of the current fiscal year are unlikely to cause the four members who voted in favor maintaining status quo during June 2024 meeting to change their minds in August 2024 meeting.
“However, if monsoon season in the latter part of the year goes well (normal rainfall) and there are no internal or external shocks, we may see a policy shift in October 2024. This will be followed by two rate cuts of 25 bps each in between which there may be a long break – spokesperson said.
In his view, Governor Das last month stated it is too early to take a call on interest rates at this stage considering the difference between current inflation rate and the 4% target.
Pradeep Aggarwal, Founder and Chairman of Signature Global (India), says as long as retail inflation remains problematic, the central bank is expected to keep interest rates unchanged for some time.
This could lead to RBI becoming more accommodative finally.
If and when the expected change in policy occurs, borrowers are likely to feel a sense of relief, and housing loan demand—which is starting to show early signs of deceleration—will most assuredly once again start growing. The economy as a whole would benefit if this change takes place earlier rather than later and it meets the 4.9% fiscal deficit target, including real estate sector reasons Aggarwal.
rbi monetary policy Puneet Pal,believes that RBI will keep rates unchanged.
Additionally, Puneet Pal, Head of Fixed Income at PGIM India Mutual Fund believes that RBI will keep rates unchanged.
Pal said the last US Fed meeting earlier this week was dovish too. “We think that the upcoming MPC policy’s undertone may be relatively dovish given that fiscal consolidation is well on track with the fiscal deficit number printing below 5 per cent and the global monetary easing cycle well and truly underway with rate cuts by Bank of England after the rate cuts from ECB and Bank of Canada,” Pal said.
The Monetary Policy Committee (MPC) determines the repo rate for policy so as to achieve its inflation target at 4% while keeping in view growth first.
The panel comprises three people from outside and three officials from RBI.
For instance, Shashanka Bhide, Jayanth R. Varma and Ashima Goyal are among those who represent external members within rate-setting panel.
In May 2022 during an off-cycle meeting, MPC raised policy rates by 40 basis points; thereafter, there were hike in rates but not all sessions had same magnitude through next five sessions to February 2023. From May 2022 till Feb’23 there has been total increase of 250 bps in repo rate.
