BackRBI likely to maintain status quo on policy rates as inflation still high: Experts
On 8 February, 2023, the apex bank raised the benchmark repo rate to 6.5 percent and since then it has retained the rates at the same level
PremiumAt its bi-monthly monetary policy review meeting early next month, the Reserve Bank may keep the same policy rates for the fourth time in a row as retail inflation continues to remain high and the US Federal Reserve has decided to keep a hawkish stance for some more time, according to experts.
On 8 February 2023, the apex bank raised the benchmark repo rate to 6.5 percent and since then it has retained the rates at the same level given the stubbornly high retail inflation and certain global factors including elevated crude oil prices in the international market.
As per details, the Reserve Bank Governor-headed six-member Monetary Policy Committee (MPC) meeting is scheduled for October 4-6, 2023. The last meeting of the MPC, the highest rating-setting panel, was in August.
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"We do expect the RBI to hold on to a status quo position this time as inflation is still high and liquidity tight. Going by RBI forecast on inflation, it would be above 5 percent in Q3 too, which will ensure that the status quo prevails for the calendar year for sure and probably Q4 too," said Madan Sabnavis, Chief Economist, Bank of Baroda.
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Sabnavis further said there are uncertainties relating to the Kharif crop, especially on pulses, which can increase prices.
"The comfort is that there is less concern on growth which is on target," he added.
In August, the Consumer Price Index (CPI)--based retail inflation eased a bit to 6.83 percent from 7.44 percent in the preceding month in July, it remained above the Reserve Bank's comfort level of 6 percent.
The government has mandated the RBI to keep inflation at 4 percent with a 2 percent margin on either side.
As per Aditi Nayar, Chief Economist, ICRA Limited, the CPI inflation is expected to ease to 5.3-5.5 percent in September 2023 from 6.8 percent in August 2023, benefitting from the halving of the average price of tomatoes as well as a favorable base.
"... We expect the CPI inflation to ease to 5.6 percent in Q3 FY2024 and further to 5.1 percent in Q4 FY2024, amid upside risks to food inflation on account of the impact of uneven and sub-par monsoons and low reservoir levels on Kharif yields and Rabi sowing, respectively," she said.
Nayar said ICRA expects the MPC to remain on hold in October 2023 policy, while continuing to demonstrate caution amid a cloudy outlook for food inflation and elevated crude oil prices.
The Reserve Bank has projected CPI inflation at 5.4 percent for 2023-24, with Q2 at 6.2 percent, Q3 at 5.7 percent, and Q4 at 5.2 percent, with risks evenly balanced. CPI inflation for Q1, 2024-25 is projected at 5.2 percent.
The Reserve Bank mainly factors in the CPI-based inflation while arriving at its bi-monthly monetary policy.
The borrowing cost which started rising in May last year has stabilized with RBI keeping the repo rate unchanged at 6.5 percent since February when it was raised from 6.25 percent. Later in the next three bi-monthly policy reviews in April, June, and August, the benchmark rate was retained.
The MPC consists of three external members and three officials of the RBI. The external members of the panel are Shashanka Bhide, Ashima Goyal, and Jayanth R. Varma. Besides Governor Das, the other RBI officials in MPC are Rajiv Ranjan (Executive Director) and Michael Debabrata Patra (Deputy Governor).
With agency inputs.
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