The Reserve Bank of India (RBI) is anticipated to keep its benchmark repo rate unchanged at 6.50% during the upcoming Monetary Policy Committee (MPC) meeting scheduled from December 6-8, according to economists. The decision aligns with the central bank’s recent trend, having maintained the rate for four consecutive times after a cumulative increase of 250 basis points from May 2022 to December 2022 .
The central bank’s decision to maintain the status quo would be driven by concerns over rising inflationary pressures, particularly attributed to a recent spike in vegetable prices. Despite a temporary easing in Consumer Price Index inflation to 4.87% in October, uncertainties surrounding food prices, especially pulses and onions, continue to exert upward pressure on inflation readings.
“We expect a status quo policy both in terms of policy rate and the stance, given the likelihood that inflation in the near term is likely to remain closer to 6%, which is the upper threshold of the MPC’s mandated band of 2-6%. The commentary is likely to remain extremely vigilant on inflation risks despite lower core inflation,” said Anubhuti Sahay, Standard Chartered Bank’s head of South Asia Economic Research.
The RBI is also expected to retain its policy stance as ‘withdrawal of accommodation,’ reflecting a cautious approach in the face of inflation risks. The Monetary Policy Committee is likely to signal a commitment to tight liquidity conditions and vigilant monitoring of inflation dynamics.
Economic growth and revised projections
The robust second-quarter Gross Domestic Product (GDP) growth at 7.6% has positioned the RBI to potentially revise upwards its growth estimate for the fiscal year 2023-24, according to experts. With credit growth across various sectors, including personal, services, agriculture, and MSMEs, the overall economic landscape appears resilient. Noteworthy growth in sectors such as housing, commercial real estate, and specific industries like chemicals, metals, and textiles has contributed to a positive credit outlook.
Challenges and risks
While the RBI acknowledges the promising economic indicators, challenges loom on the horizon. Concerns about inflationary pressures from higher oil prices, coupled with potential tightening of global financial conditions, present risks to currency stability, inflation, and overall economic growth.
As the RBI aims to strike a balance between sustaining economic growth and managing inflation, the upcoming MPC meeting is keenly awaited. The central bank’s decision to keep the repo rate unchanged underscores its commitment to a cautious and calibrated approach, ensuring stability in the face of evolving economic dynamics. The commentary following the meeting will provide further insights into the RBI’s strategy and its outlook on India’s economic trajectory in the coming months.
