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Business News/ Economy / RBI Monetary policy: Pause in rate hike, other predictions by SBI Research

The Reserve Bank of India (RBI) is again expected to keep the repo rate unchanged and will go for a “prolonged pause" in its bi-monthly monetary policy this week, said SBI Research in a report.

Moreover, the central bank is likely to downgrade inflation projections for FY24 and a possibility of a GDP growth upgrade, according to the research report authored by Soumya Kanti Ghosh, Group Chief Economic Adviser State Bank of India.

The RBI’s monetary policy committee headed by governor Shaktikanta Das is slated to hold the policy meeting this week with its decision to be announced on June 8.

Also Read: How to tweak your stock portfolio ahead of RBI MPC meeting — explained

In the last policy meet in April, RBI MPC paused rate hikes, keeping the key repo rate unchanged at 6.50%. RBI has hiked repo rates by already 250 bps since May 2022.

The central bank projected retail inflation to moderate to 5.2% in FY24, while GDP growth for the year was estimated to be at 6.5%.

SBI Research said inflation estimates for FY24 could be downgraded and as growth remains strong, the possibility of growth upgrade for FY24 looks imminent in June policy.

“With sizeable banking failures across advanced economies, and a fair probability of contagion spreading across markets despite concerted action from policy makers/regulators to check the same, RBI’s endeavor to sidestep from synchronous rate hike was a courageous gambit, especially since climate risk could upend inflationary projections," the report said.

Also Read: With rate hike cycle behind, banks’ margins expected to stabilise, credit growth could moderate

The stance could continue to be withdrawal of accommodation, as liquidity has turned into significant surplus mode. The RBI could make a tactical shift in forward market intervention to sell buy swaps, neutralize liquidity and allow Rupee to find its own level, it added.

As per the latest estimates released by the National Statistical Office (NSO), India’s real GDP growth for 2022-23 stood at 7.2%, higher than the 7% projected.

Meanwhile, country-wise central bank rate action data indicates that out of 147 countries, 95 economies paused their rates in the latest policy and policy rate increased in only 43 countries.

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Updated: 05 Jun 2023, 03:37 PM IST
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