CHENNAI: The Reserve Bank of India’s (RBI) monetary policy committee (MPC) may not change interest rates and will continue with a ‘pause’ mode in its upcoming meeting, experts said.
The MPC met on April 3, 5 and 6 this year and decided to freeze the repo rate at 6.50 per cent after a series of hikes as an inflation control measure.
“The upcoming MPC meeting in early June is expected to focus on two important aspects that have emerged over the past few weeks – continued moderation of headline retail inflation and a better-than-expected GDP growth print in Q4FY23,” Suman Chowdhary, Chief Economist and Head-Research, Acuite Ratings & Research told IANS.
According to Chowdhary, consumer price index (CPI) inflation eased to 4.70 per cent year-on-year (YoY) in Apr-23, which is an 18-month low and within the RBI’s target range (2-6 per cent) doing. 2nd consecutive month.
“Wholesale Price Index (WPI) inflation fell to a 34-month low of minus/(-)0.92 per cent in April-23, returning to negative territory after a gap of 33 months,” Choudhary said.
Core retail and wholesale inflation also declined to an 11-month low of 5.48 per cent and a 41-month low of (-)1.77 per cent, respectively, in Apr-23.
Chaudhary said the benign trajectory for both WPI and CPI can be attributed to easing food inflation, lower commodity costs, favorable statistical base effect and easing of the impact of past monetary tightening.
“Despite potential risks such as El Nino, we expect a sustained recovery in headline CPI inflation in FY204, although core inflation may prove somewhat firmer amid stronger growth momentum in services, especially from intensive ones. Contact. We retain our FY24 CPI inflation projection at 5.3 per cent as compared to last year’s 6.6 per cent,” Choudhary said.
With regard to GDP numbers, Choudhary said that the provisional estimates of GDP in Q4 FY23 and FY23 have surpassed the market consensus figures.
“As against our estimate of Q4GDP of 5.0 per cent, the actual print has come in at 6.1 per cent YoY and is much higher than 4.4 per cent YoY in Q3FY23. Overall, GDP growth for FY23 is at 7.2 per cent, while the earlier advances 7.0 percent was reported in the estimates.
However, concerns remain on the demand side as private consumption grew only by 2.8 per cent in the fourth quarter, Chowdhury remarked.
For the current year, Acuite Ratings projects a growth of 6.0 per cent, given the expected impact of global uncertainties and the lagged effect of interest rate hikes on the domestic economy, though the RBI pegs it at a more optimistic 6.5 per cent. Chowdhary said.
“Given such a scenario on growth-inflation dynamics, we believe that the RBI MPC would prefer to adopt a “wait and watch” mode before taking any confident action on any rate change. It is likely, therefore, to continue for another two quarters,” concluded Choudhary.
Churchill Bhatt, executive vice-president and debt fund manager at Kotak Mahindra Life Insurance Co Ltd, said the market is not expecting an immediate rate cut.
“The best-case scenario for June policy would be a soft ‘stance’ by the MPC. The current policy stance of ‘withdrawing accommodation’ has already run its course, with the pandemic-era policy accommodation behind us. It is only a matter of time. before the MPC moves towards a ‘neutral’ stance,” Bhatt said.
According to Bhatt, the MPC may maintain status quo on rates in June.
In the April meeting, the MPC decided to focus on a return to accommodation while supporting growth to ensure that inflation progressively aligns with the target.
Arguing for a pause, Ashima Goyal, Emeritus Professor, Indira Gandhi Institute of Development Research, Mumbai, said inflation forecast for FY24 at 5.2 per cent, Q4 at 5.2 per cent, implies repo rate at 6.5 per cent that the actual policy rate is higher. than one.
“Barring other complementary policies and large new shocks, it has already tightened enough to progressively bring inflation closer to the 4 percent target. At present it is best to avoid further increases in real interest rates as higher real rates are a may trigger a non-linear switch to a lower growth path,” Goyal said.
Goyal and Prof. Jayant R. Verma, Professor, Indian Institute of Management, Ahmedabad was against the repo rate hike in the recent MPC meetings.
Verma said he did not understand the meaning of the word ‘rukh’ – return of accommodation.
“Turning to the stance, I must admit that I fail to understand its meaning. My colleagues at the MPC have assured me that the language is clear to market participants and others. It may well be that I am the only person who finds it difficult to understand,” said Verma.
“But I am unable to reconcile the language of the stance with the simple fact that there is no further ‘roll back adjustment’ as the repo rate has already been raised to the level of 6.50 per cent that prevailed at the beginning of the last easing. cycle in February 2019. It is certainly possible to tighten further, but it will not be a ‘return to accommodation’ by any stretch of the imagination,” Verma said.