RBI MPC meeting: Key indicators to look out for in August 8 policy meeting

The Reserve Bank of India (RBI) Governor Shaktikanta Das is scheduled to announce the Monetary Policy on Thursday, August 8 at 10 a.m. (IST). The RBI's monetary policy announcement sets the key benchmark interest rates for the Indian economy. The central bank has kept the rates unchanged at 6.5 per cent for the last 18 months.

Global markets have experienced a recent increase in volatility due to the increase in fears in the global markets for a strong potential of the United States economy slipping into recession. The global markets took significant hits, markings in red after the US released the job data at the end of last week.

The market's downward trend was initiated by investors' reaction to a mass sell-off, which started as the yen rose on Monday. This came after the Bank of Japan hiked its interest rates twice after 17 years, to 0.25 per cent, as of July 31.

Here are the key things to look out for:

1. Repo Rates: The key benchmark interest rate, the rate at which the Reserve Bank of India gives credit to commercial banks. Mint reported earlier that market experts are expecting a hawkish and neutral stance policy on the August 8 announcement.

“We expect both the policy repo rate and monetary stance to remain unchanged in the August policy, though we are of the opinion that the stance should change to neutral,” said Kaushik Das, Chief Economist for India at Deutsche Bank AG, reported Bloomberg.

2. Inflation: India's inflation remains above target levels of 4 per cent. Currently at 4.9 per cent to which Governor Das has previously warned against a pre-mature rate cut before inflation is under the target or the expectation. The inflation may have eased off in July and August, but the expectation is for it to rise in September, as per Bloomberg.

The Reserve Bank of India has previously forecasted an average inflation of 4.5 per cent in the financial year through March. Bloomberg Economics reported that Abhishek Gupta estimates that inflation is 70 basis points higher than it should be using new weights for CPI, according to the report.

3. Central Banks around the world: Central banks around the world have shifted their stance or are looking to change their stance. The Bank of Japan increased their interest rates for a second time this year, and the Bank of England cut their key interest rates. The US Federal Reserve (FED) is also eyeing a rate cut as the fear of the economy slipping into recession rises amongst investor community.

4. Liquidity front after JP Morgan Bond Index inclusion: RBI's August 8 monetary policy meeting announcement is the first meeting after the country's bonds got included in the JP Morgan Emerging Markets Bonds index. Any RBI's comments on that front will be a thing to look out for as the central bank will aim to control the liquidity and volatility in the currency and bond markets.