Mumbai, Reserve Bank’s high level panel on Wednesday started deliberations on the bi-monthly monetary policy amid expectations of status quo on interest rate as the retail inflation is above the upper tolerance level of the central bank. The decision taken at the RBI Governor Shaktikanta Das headed six-member Monetary Policy Committee (MPC) will be announced on Friday (December 6).
Das is chairing the last MPC meeting of his current term which ends on December 10.
The government has tasked the RBI to ensure consumer price index (CPI) based inflation remains at 4 per cent with a margin of 2 per cent on the either side.
The Reserve Bank has kept the repo or short-term lending rate unchanged at 6.5 per cent since February 2023 and experts think some easing could only be possible in 2025.
“We do not foresee rate cut during the current FY… First rate cut and further change in stance likely in April 2025,” said a SBI research report.
The report further said it is better that the second quarter growth numbers “do not prompt a knee jerk reaction” in terms of monetary impulse like rate cut as headline inflation continues to trade at uncomfortable levels.
India’s economic growth slowed to near two-year low of 5.4 per cent in the July-September quarter of this fiscal due to poor performance of manufacturing and mining sectors. The gross domestic product (GDP) had expanded by 8.1 per cent in the July-September quarter of 2023-24 fiscal.
The central bank last hiked the repo rate to 6.5 per cent in February 2023 and since then it has held the rate at the same level.
The RBI kept the repo rate unchanged in its last bi-monthly review (October) also amid risks from higher food inflation.
On expectations from the MPC, Mandar Pitale, Head Treasury, SBM Bank India, said the RBI may consider to infuse durable liquidity by phased reduction in CRR (25 basis points in 2 phases till the next MPC meeting) to support growth through liquidity injection rather than considering a rate cut. MPC may also consider an option of infusing durable liquidity through OMO purchase.
Atul Monga, CEO and Co-founder of BASIC Home Loan, too expects the RBI to keep the repo rate unchanged with an aim to balance inflation and support economic growth.
“With the repo rate remaining unchanged, housing demand is expected to remain steady, especially in the mid-range and luxury segments, supported by stable interest rates. Both developers and home buyers can benefit from predictability in borrowing costs,” Monga said.
In an off-cycle meeting in May 2022, the MPC raised the policy rate by 40 basis points and it was followed by rate hikes of varying sizes, in the subsequent meetings till February 2023. The repo rate was raised by 250 basis points cumulatively between May 2022 and February 2023.
The MPC members are: Nagesh Kumar, Director and Chief Executive, Institute for Studies in Industrial Development, New Delhi; Saugata Bhattacharya, Economist; Ram Singh, Director, Delhi School of Economics; Rajiv Ranjan, Executive Director, RBI; Michael Debabrata Patra, Deputy Governor, RBI; and Shaktikanta Das, Governor, RBI.
