RBI MPC meeting: What does Indian stock market expect on August 8?

The Reserve Bank of India's Monetary Policy Committee started its three-day conference on Tuesday to review the economic situation and discuss interest rates. The six-member RBI MPC, responsible for setting India’s benchmark interest rates, began its discussions on August 6 and will conclude on August 8.

Changes to the repo rate directly impact the borrowing costs for banks and indirectly influence loan interest rates for businesses and individuals. RBI Governor Shaktikanta Das is scheduled to announce the committee's decision on interest rates at 10 a.m. on August 8.

In the wake of Monday's market upheaval and the subsequent demands for significant and prompt rate cuts from central banks, experts think the RBI will proceed cautiously with rate reductions, as there are indications of stability in global markets.

According to Aditi Nayar, chief economist and the head of research and outreach at ICRA, the RBI MPC will maintain a status quo in its August policy meet due to solid economic growth and inflation near the 5 per cent mark.

"High growth in FY2024, combined with the inflation of 4.9% in Q1 FY2025 are unlikely to shift the voting pattern of the four members who voted for a status quo in the June 2024 meeting towards a change in stance or rate cut in the August 2024 meeting itself," said Nayar.

What does Indian market expect from the upcoming announcement?

Market experts believe that the central bank is likely to give up its hawkish tilt and pivot to a neutral stance on August 8.

The Reserve Bank of India is likely to give up its hawkish tilt and pivot to a neutral stance at its upcoming review on Aug. 8. There are signs that the RBI will signal a policy shift to easing as high real rates are hurting growth, core inflation is at a record low, food-price gains are expected to drop imminently, and liquidity has turned surplus," said Amit Goel, Co-Founder & Chief Global Strategist, Pace 360.

In addition, the fiscal deficit target has been cut further, and markets are fully pricing in a Fed rate cut by September, which could further strengthen the real effective exchange rate of the rupee in the absence of domestic easing.

“We expect the MPC to keep the policy rate at 6.5%, in line with the consensus view. We anticipate that the committee will vote in favor of switching its stance to neutral from its hawkish ‘accommodation withdrawal’ stance at the June review,” Goel added.

Goel further went on to say that this will have a positive impact on equities. “It is advisable to book profits and gradually increase allocations in bonds and gold. We believe that, going forward, both bonds and gold will offer better performance opportunities compared to equities,” he said.