RBI likely to keep repo rate unchanged during next MPC in August: Experts

  • Reserve Bank of India (RBI) is likely keep the benchmark repo rate unchanged for the third time in a row in its upcoming bi-monthly policy review

Edited By Devesh Kumar
First Published30 Jul 2023, 07:39 PM IST
The RBI Governor Shaktikanata Das-led monetary policy committee (MPC) will meet on 8-10 August
The RBI Governor Shaktikanata Das-led monetary policy committee (MPC) will meet on 8-10 August

United States Federal Reserve announced increase in the benchmark rates to a 22-year-high ranging from 5.25% to 5.50% and has hinted at more rate hikes to bring down inflation. The decision is going to impact the moves of India's central bank with experts opining that the Reserve Bank of India (RBI) may keep the benchmark repo rate unchanged for the third time in a row in its upcoming bi-monthly policy review.

The RBI Governor Shaktikanata Das-led monetary policy committee (MPC) will meet on 8-10 August and the decision will be announced on 10 August by the Governor. The central bank has kept the repo rate unchanged at 6.5% since February.

"We do expect the RBI to hold on to a status quo position on both rates and stance. The reason is that while inflation is presently running at less than 5 percent there would be some upside risk to this number in the coming months with prices of vegetables and pulses going up sharply. Therefore, an extended pause is expected," said Madan Sabnavis, Chief Economist, Bank of Baroda.

Madan Sabnavis opines that the central bank has projected inflation to climb up to 5.4% for the third quarter of this fiscal, so it is unlikely that the repo rate stance may get changed till the next calendar year.

“On the policy stance, since the liquidity conditions have turned favorable post the announcement of the withdrawal of the 2,000 note, we expect the RBI to continue to hold on to the current stance of 'withdrawal of accommodation,” Upasna Bhardwaj, Chief Economist, Kotak Mahindra Bank said.

Upasna Bhardwaj said that everything will depend on the domestic inflation dynamics and global cues.

CPI inflation expectations

In June, India experienced a rise in retail inflation, measured by the Consumer Price Index (CPI), reaching its highest level in three months at 4.81%. This increase was primarily attributed to the upward movement in food prices. It is noteworthy, though, that the inflation rate is still well within the acceptable range set by the Reserve Bank of India (RBI), which aims to keep inflation below 6%.

To address the situation and maintain stable inflation, the government has entrusted the central bank with the responsibility of ensuring that retail inflation remains around 4%, allowing for a 2% leeway in either direction.

The central bank mainly considers the CPI data while making its monetary policy decisions, which are reviewed on a bi-monthly basis.

The CPI inflation is expected to surge to above 6% in July 2023 on the backs of rising vegetable prices, Aditi Nayar, Chief Economist, Head Research and Outreach, ICRA said. "As a result, we expect the MPC's commentary to be fairly hawkish, amid a continued pause on the repo rate and stance in the upcoming policy review," she said.

(With inputs from PTI)

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First Published:30 Jul 2023, 07:39 PM IST
HomeEconomyRBI likely to keep repo rate unchanged during next MPC in August: Experts

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