The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) meeting scheduled from April 3 to 5 is likely to vote for continuation of the repo rate at 6.50 per cent.
The majority of MPC members are anticipated to vote for maintaining the status quo in alignment with the central bank’s commitment to anchoring retail inflation around the four per cent target.
Throughout the previous financial year (FY24), the RBI kept the repo rate unchanged across all six bi-monthly monetary policy reviews, a trend attributed to persistently high retail inflation levels surpassing the monetary policy committee’s target. The last alteration to the repo rate occurred in February 2023, when it was elevated from 6.25 per cent to 6.50 per cent.
While economists largely anticipate the RBI to uphold its ‘withdrawal of accommodation’ stance, some speculate the possibility of a shift to a ‘neutral’ stance. This adjustment could potentially pave the way for rate cuts later in the new financial year, particularly towards the middle of FY25.
RBI Governor Shaktikanta Das, in his recent monetary policy statement, stressed the ongoing vigilance required to combat inflationary pressures, highlighting the necessity for continued monetary policy vigilance in navigating the final stages of disinflation.
| Some economists suggest that while both the repo rate and stance are likely to remain unchanged, a shift to a neutral stance cannot be entirely ruled out given the central bank’s history of surprising decisions, particularly in April. |
Rate cut, when?
Economists foresee a potential shallow rate cut cycle of 50 basis points commencing in the third quarter (October-December) of FY25.
Amidst these deliberations, recent actions by the US Federal Reserve, which retained its benchmark overnight interest rate and maintained its outlook for three rate cuts this year, have also influenced the discourse surrounding India’s monetary policy.
Looking ahead, inflation projections indicate a decline until July, followed by a subsequent increase peaking at 5.4 per cent in September, before decelerating. For the entirety of FY25, CPI inflation is anticipated to average at 4.5 per cent.
Reflecting on liquidity dynamics, a SBI report noted a decline in liquidity deficits since the February policy meeting. Additionally, SBI forecasts growth in deposits and credit at 14.5-15 per cent and 16.0-16.5 per cent, respectively, for FY25.
Against the backdrop of global economic uncertainties and domestic inflationary pressures, the RBI’s forthcoming MPC meeting holds significant implications for monetary policy direction and its impact on the broader economy.
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