RBI MPC Meet: Rate Revision, Inflation Forecast, What to Expect

The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI), which began its three-day meeting on Wednesday, is likely to keep key policy rates unchanged in the first bi-monthly policy review of this fiscal. Almost all economists News18.com expect the MPC to keep the repo rate unchanged at 4 per cent. However, economists are divided on whether the repo rate hike will happen in June or August. The six-member rating panel will hold its first meeting of the current fiscal from April 6-8.

Will RBI retain MPC rates?

Since the February review, just as geopolitical risks provide a negative impulse to global growth, the economic climate has changed with a sharp rise in commodity prices, threatening the inflation outlook.

Ritika Chhabra, Economist and Quant Analyst at Prabhudas Lilladher, said: “While the general consensus on the road is that the RBI will maintain status quo on interest rates in this MPC meeting, we cannot rule out the possibility of a rate hike of 25 bps as the near-term Inflation shows no sign of moderation in future. The Russo-Ukraine war has added to inflationary pressures as these two countries are important suppliers of commodities including oil, wheat, corn, palladium, among others. The situation remains uncertain as peace talks between the two have failed and there is no solution in sight.”

The RBI MPC will still have a tough choice in terms of weighing in on uneven home improvement and strong inflationary pressures that have intensified since the last policy meeting. Suvodeep Rakshit, Senior Economist, Kotak Institutional Equities, said: “While there is a chance that the RBI hikes the reverse repo rate in its April policy, the market is unlikely to be affected much as the effective rate is much higher than the reverse repo rate. Due to VRRR operation. The RBI is likely to continue to signal its intention to support the government borrowing programme, although any explicit measures should be avoided. As for the April policy, we expect the RBI to start telegraphing its intent by becoming more concerned on the inflation outlook, keeping the stance and repo rate unchanged.

inflation control

The RBI downgraded inflation risk in its February policy meeting, projecting average consumer price inflation at 4.5 per cent in FY23. “While RBI’s inflation forecast for FY2023 will need to be revised, it is unlikely that they will react to it immediately. Rakshit said, we expect the RBI to take a stern voice so that its intention to contain the continuing inflationary risks can be wired and the next few policies can be put in place to reverse the neutral stance after the hike in the repo rate. .

However, since then, the prices of petrol and diesel have cumulatively increased by around Rs 10 till March 22 and are expected to rise further by Rs 10-12. Similarly, LPG prices, which have been hiked by Rs 50/cylinder, are expected to increase further by Rs 280 per cylinder to avoid under-recovery.

RBI behind the curve

Economists believe that the central bank is already behind the curve in tackling inflation, and that policy will need to revise its forecast further. “A 50-70 bps upward revision in the FY 2013 inflation forecast, which currently stands at 4.5 per cent, is inevitable. Comments in the run-up underscore our view that the MPC considers inflation risks through higher oil to be supply-driven and calls for administrative measures to offset the impact on inflation as well as real income. Economists at Kotak Economic Research said.

At the policy meeting, the MPC may also highlight downside risks to growth arising from higher oil prices due to the Russia-Ukraine conflict and lower its FY23 growth forecast from the current 7.8 percent.

Revision of Growth Estimates on Cards

Both Das and deputy governor in charge of monetary policy Michael Patra have spoken of the need to revise inflation and growth projections in light of recent developments. Jyoti Prakash Gadiya, Managing Director, Resurgent India, said: “RBI may also revise the growth rate estimates, which may impact the stock market sentiment in the short term. However, the rising GST numbers and the overall spurt in exports augurs well for the economy and may prompt the RBI to continue supporting growth.

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