Mumbai: The six-member Monetary Policy Committee (MPC), headed by RBI governor Urjit Patel, started three-day deliberations in Mumbai on Monday to decide on the policy interest rate amid elevated oil prices and inflation hovering around 5%.

Experts are divided in their opinion about the likely action of the Reserve Bank of India on the benchmark lending rate. While some said the central bank would maintain status quo on Wednesday, others did not rule out another rate hike.

The MPC is meeting for the third bi-monthly Monetary Policy Statement for 2018-19. The resolution of the MPC will be made public in the afternoon of 1 August.

The RBI had increased the benchmark short-term lending rate (repo rate) by 0.25 percentage points to 6.25% in its last policy review in June. Retail inflation, which is factored in by the MPC, spiked to a five-month high of 5% in June on costlier fuel.

The government has mandated the Reserve Bank to keep inflation within a band of 2-6%.

Experts also said the government’s decision to substantially hike the minimum support price for the kharif crop will have an adverse impact on inflation. While crude oil prices have come off three-year highs, they continue to be volatile, threatening inflation and the current account deficit.

In a research report, India’s largest bank the State Bank of India (SBI) said the RBI may not go in for another rate hike at this juncture. “We believe the August rate decision is a close call, though we believe status quo rather than a hike looks the best option," it said.

The only reason for a rate hike by the RBI at this juncture might be to “satiate the self-fulfilling prophecy" of market expectations of a rate hike to stem the rupee’s depreciation (the rupee has depreciated by 3% since June), it added.

In SBI’s view, inflation risks are evenly balanced. While the MSP hike could push up the CPI by 73 basis points, such inflation is unlikely to materialise as it is purely subject to procurement by the central and state governments.

Edelweiss Securities said: “We expect the MPC to maintain its neutral stance while keeping rates unchanged."

Global financial services major DBS in a research report, however, said RBI is expected to go in for further rate hikes this fiscal, with the next increase in August. According to DBS, the upside risks to inflation and a need to maintain financial markets’ stability will keep monetary policy on a tightening bias.

“We expect 50 bps more hikes in 2018-19, with the next one likely in August," Radhika Rao, an economist with DBS, said.

Private sector lender HDFC Bank believes that the decision on a rate hike is a “close call" for the RBI, “But we expect the RBI to tilt in favour of a ‘hold’," its house economists said in a note.

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