Home / News / India /  RBI's 3-day MPC meet starts today, may go for 25 basis points repo rate hike

The three-day deliberations of the Reserve Bank of India's(RBI's) rate-setting panel -Monetary Policy Committee (MPC) meeting of the Reserve Bank of India is set to commence today. The decision will be announced on 8 February. With retail inflation showing signs of softening and the US Fed moderating the pace of increase in its benchmark interest rate, the Reserve Bank is likely to settle for a smaller 25 basis points repo rate hike according to the experts.

The RBI has been tasked to ensure that retail inflation remains at 4 per cent with a margin of 2 per cent. However, it failed to keep the inflation rate below six per cent for three consecutive quarters beginning January 2022.

The retail inflation based on the Consumer Price Index (CPI) has shown signs of moderation in November and December as it fell below the RBI's upper tolerance level of 6 per cent.

“RBI will probably stick to a moderate increase in its benchmark lending rate in the upcoming policy announcement, before hitting a pause button on hikes later in 2023," said Dhruv Agarwala, Group CEO, Housing.com on his expectations from the MPC to news agency PTI.

On the other hand, Ranen Banerjee, Partner and Leader, Economic Advisory Services at PwC India said with the US Fed bringing down the quantum of increase to 25 bps, CPI within the tolerance range of RBI, yield differentials between US and India increasing to around 3.75 percentage points, sluggish exports and need to keep borrowing costs low for government and the private sector, the MPC does not have many reasons for a further rate hike.

"The only argument for a rate hike would be too early a pause may lead to de-anchoring of inflation expectations. On this front too, given our inflation is mostly demand-led and not supply-led, the arguments are weak.

"We should therefore not be surprised if the majority in MPC actually goes for a pause or a token 10-15 bps repo rate increase from a signalling perspective," said.

*With inputs from agencies


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