RBI may continue status quo on short-term lending rate
In its upcoming bi-monthly monetary policy this week, say experts
image for illustrative purpose
Mumbai: Coming close on the heels of the interim budget which maintained the status quo on policy front, the Reserve Bank is likely to continue with the pause on the short-term lending rate in its upcoming bi-monthly monetary policy this week as retail inflation is still near the higher end of its comfort zone, say experts.
It is almost a year since the Reserve Bank has kept the short-term lending rate or repo rate stable at 6.5 per cent. The benchmark interest rate was last raised in February 2023 to 6.5 per cent from 6.25 per cent to contain inflation driven mainly by global developments. The retail inflation in the current financial year has declined after touching a peak of 7.44 per cent in July, 2023, it is still high and was 5.69 per cent in December 2023, though within the Reserve Bank's comfort zone of 4-6 per cent.
RBI Governor-headed Monetary Policy Committee (MPC) will start its three-day deliberations on February 6. Governor Shaktikanta Das will announce the decision of the six-member panel on February 8. Madan Sabnavis, Chief Economist, Bank of Baroda, said the MPC is likely to maintain an unchanged approach in terms of both rate and stance. "This is so as inflation, as per the December data, is still high and there are pressures on the food side. This is notwithstanding the fact that core inflation has come down," he said. Going by RBI's forecasts on inflation it would remain above 5 per cent till June end and come down subsequently.
"Also with growth being robust, there is less pressure to think of a rate cut at this time. In fact, the RBI has indicated that the transmission of the 250 bps cut in rates is still not complete and hence there is reason for a pause," Sabnavis said. It would be interesting to see if there are any revisions in the forecasts of GDP and inflation for FY24.
"Also, some sense on how GDP growth would turn out in FY25 will be useful given that the budget has outlined the contours," said the chief economist with the public sector bank.
