Mumbai: Following on the heels of the interim budget that maintained the status quo on the policy front, the Reserve Bank is likely to continue the short-term lending rate pause in its next bi-monthly monetary policy this week, as it retail inflation is rising. still near the upper end of its comfort zone, experts say.
It has been almost a year since the Reserve Bank held the short-term lending rate or repo rate steady at 6.5 per cent. The benchmark interest rate was last raised in February 2023 to 6.5 percent from 6.25 percent to contain inflation driven mainly by global developments.
Retail inflation in the current financial year has eased after peaking at 7.44 per cent in July 2023, remains high and was 5.69 per cent in December 2023, although within the comfort zone of the Reserve Bank from 4 to 6 percent.
The Monetary Policy Committee (MPC) headed by the RBI Governor will begin its three-day deliberations on February 6. Governor Shaktikanta Das will announce the decision of the six-member panel on February 8. (Read also:
Madan Sabnavis, chief economist at Bank of Baroda, said the MPC is likely to maintain a flat approach both in terms of rates and stance. “This is because inflation, according to December data, is still high and there are pressures on the food side. This is despite the fact that core inflation has decreased,” he said.
According to the RBI’s inflation forecast, it would remain above 5 per cent until the end of June and would decline thereafter. “Also, since growth is robust, there is less pressure to think about a rate cut at this time. In fact, the RBI has indicated that the transmission of the 250 basis point rate cut is not yet complete and therefore “There are reasons for a pause,” Sabnavis said. (Also Read: Indian stock exchanges reduced Paytm daily trading limits to 10% after crash)
It would be interesting to see if there is any revision in the GDP and inflation forecasts for FY24. “Also, it will be useful to have an idea of how GDP growth would turn out in FY25, given that the budget has outlined the contours” said the chief economist of the public sector bank.
The government has directed the central bank to ensure that retail inflation based on the Consumer Price Index (CPI) remains at 4 per cent with a margin of 2 per cent on either side. On RBI’s expectations on monetary policy, Aditi Nayar, Chief Economist, Head of Research and Extension, ICRA, said CPI-based inflation is expected to moderate in FY25, although a well-distributed monsoon will be critical .
“We do not expect any change in rates or stance in the next review. Our basic expectation is that the first rate cut could be seen in August 2024 with a change in stance in the previous review,” he said.
The Goldman Sachs report expects the RBI to keep the policy repo rate unchanged until the third quarter of calendar 2024 (Q3 CY24). “With Q1FY24 headline inflation still above the RBI’s target, we maintain our view that the RBI will keep the policy repo rate unchanged at 6.5 per cent in the policy meeting on 8 February, will continue with an aggressive stance and reiterate the 4 per cent inflation target. Furthermore, we expect the RBI to maintain its tight liquidity stance,” he said. (Also read: BLS-E Services IPO Assignment: Here’s how to check the assignment status with a few clicks)
Meanwhile, Finance Minister Nirmala Sitharaman is scheduled to address the central board of the Reserve Bank of India on February 12 and highlight the key points of the interim Union budget presented by her in Parliament on February 1. February. Bank of India Board after the budget.