RBI MPC meeting today: RBI may keep rates higher for a while, says economist
1 min read 01 Apr 2023, 04:16 PM ISTThe RBI, like most emerging market central banks, will closely follow what its American counterpart has been doing, but 'need not follow every step of what Fed does'
PremiumThe Reserve Bank of India (RBI) is expected to go for one more quarter point rate increase, in its first bi-monthly monetary policy meeting for financial year 2023-24, in line with the US Federal Reserve, but domestic compulsions may result in a pause after that, said QuantEco Research's founder Shubhada Rao.
The RBI, like most emerging market central banks, will closely follow what its American counterpart has been doing, but “need not follow every step of what Fed does," Rao said in an interview with Bloomberg.
“Domestic compulsions will somewhere also begin to guide the central bank’s policy direction," the founder of the economic research firm stated.
The Monetary Policy Committee (MPC) of the RBI will be meeting for three days on 3, 5 and 6 April to take into account various domestic and global factors before raising the benchmark rate for a seventh successive time.
The two key factors which the RBI MPC will deliberate intensely while firming up the next monetary policy are elevated retail inflation and the recent action taken by central banks of the developed nations especially the US Fed, European Central Bank and Bank of England.
India's retail inflation
India's retail inflation jumped above the RBI's upper target band of 6% in the first two months of 2023. Persistently high core inflation, over 6% for 17 straight months, is holding back policymakers from easing on rates amid early signs of a demand slowdown.
The Consumer Price Index (CPI)-based inflation was 6.52 per cent in January and 6.44 per cent in February.
While there are signs of cooling demand in urban areas, rural demand stays “fairly strong" on the back of better agricultural growth over the last few quarters. “If growth shows a dramatic slowdown only then RBI would perhaps be prompted to start cutting rates," said Rao, but such easing may only come in the fiscal year that starts in April 2024.
The central bank has been raising benchmark rates since May 2022 to tame inflation, which has been largely driven by external factors, especially the disruption of the global supply chain following the outbreak of the Russia-Ukraine war.
In its last policy meeting held in February, the RBI had raised the policy rate or repo by 25 basis points to 6.50 per cent.
