Reserve Bank of India (RBI) to keep policy repo rate unchanged at 6.5 per cent during its upcoming June 8 announcement, indicating moderation in retail inflation in April and likely further decline, indicating effectiveness of previous policy rate actions . expert.
The six-member Monetary Policy Committee (MPC) headed by Reserve Bank Governor Shaktikanta Das is scheduled to meet on June 6-8. The decision of the 43rd meeting of the MPC will be announced on Thursday, June 8.
After the last MPC meeting in April, the RBI halted its rate hike cycle and stuck to the repo rate of 6.5 per cent. Earlier, the central bank had increased the repo rate by 250 basis points cumulatively from May 2022 to contain inflation.
Read also: RBI to keep rates on hold through 2023, cut expected in early 2024: Report
The MPC meeting is taking place against the backdrop of consumer price-based (CPI) inflation falling to an 18-month low of 4.7 per cent in April. The RBI governor had recently indicated that the May print would be less than the April number. The CPI for May is due to be announced on June 12.
Madan Sabnavis, Chief Economist, Bank of Baroda said that the RBI is most likely to continue with the pause on interest rates and keep the repo rate at 6.5 per cent.
“The reason is that inflation has come down to less than 5 per cent in April and will come down further in May. That being the case, the view would be that the previous repo rate actions have had an impact on inflation and hence another pause may be taken,” he said.
He said the policy stance, however, would remain accommodative with a return to accommodative as liquidity has already increased due to increase in deposits due to the announcement of exchange of Rs 2,000 notes.
Experts said the RBI will also monitor the progress of monsoon and possible adverse effects of El Nino, which may affect the kharif crop and hence prices.
“However, for the year, we see a 25-50 bps cut in the repo rate, which will happen only after October,” Sabnavis said.
The government has mandated the RBI to ensure that CPI inflation remains at 4 per cent with a margin of 2 per cent on either side.
Bankers also expect the central bank to continue with its pause in the upcoming policy.
He said, ‘As far as bankers are concerned, I would just say that the repo rate of RBI has already been increased by 2.5 per cent. The expectations from the market or the banking side are that we do not expect any increase in the repo rate as the interest rate on the repo side has already been raised to 2.5 per cent and inflation is moderate,” Rajneesh Karnataka, managing director of Bank of India told PTI. told.
He said that inflation is also moderate. “If you look at the wholesale inflation and retail inflation data, it is moderate now. I think there will be pause from RBI side and no increase in repo rate,” Karnataka said.
Echoing his views, Bank of Maharashtra executive director Ashish Pandey said the RBI will continue with its wait-and-watch stance before tinkering with the rate.
Pandey said that keeping in view the inflation, liquidity in the banking system and the recent GDP numbers, it seems that the RBI is likely to maintain the standstill as far as the interest rate is concerned.
Experts said the actual decision taken by the RBI would depend on various factors, including economic data, inflation trends, global economic conditions and current challenges.
PHD Chamber of Commerce and Industry President Saket Dalmia said that at this point of time, the status quo by the RBI would support the demand trajectory in the country and keep GDP growth on the high road.
“We congratulate the RBI that the effectiveness of policy rates has proved strong with a 250 bps increase in the repo rate, bringing down inflation by 310 bps. ERPR (Policy Rate Effectiveness Ratio), the ratio of increase in repo rate to reduction in inflation is 1.24; That is, with one basis point increase in the repo rate, the country was able to bring down the inflation rate by 1.24 basis points.
On his expectations from the RBI, ICRA Managing Director and Group CEO, Ramnath Krishnan said inflation readings have eased, suggesting that April’s surprise pause is likely to extend further into June 2023.
“Dismissing the initial rate cut, the growth surprised on the upside as well. The market will keenly await RBI’s cues on liquidity management, including the impact of Rs 2,000 notes coming back into the banking system.
Other members of the MPC are: Shashank Bhide (Honorary Senior Advisor, National Council of Applied Economic Research, Delhi); Ashima Goel (Emeritus Professor, Indira Gandhi Institute of Development Research, Mumbai); Jayant R Verma (Professor, Indian Institute of Management, Ahmedabad); Rajeev Ranjan (Executive Director, RBI); and Michael Debabrata Patra (Deputy Governor, RBI). The meeting is being chaired by RBI Governor Shaktikanta Das.
(This story has not been edited by News18 staff and is published from a syndicated news agency feed – PTI,