RBI's first MPC meeting post-elections: Key expectations and economic impact

The Reserve Bank of India (RBI) plays a critical role in shaping the economic landscape of the country. One of its pivotal functions is conducted through the Monetary Policy Committee (MPC), which meets periodically to set interest rates and discuss other monetary policy measures. The first MPC meeting following an election is particularly significant as it reflects the central bank's approach to addressing the new economic priorities set by the incoming government.

Following the outcome of the Lok Sabha Elections, concerns have risen about a potential slowdown in fiscal consolidation coupled with increased welfare spending. Moody's Investors Service highlighted that while fiscal consolidation prospects remain intact, the pace of debt reduction might slow following the 2024 election results. The RBI's Monetary Policy Committee (MPC) is set to meet from June 5 to June 7, with their decision to be announced at the end of the meeting.

SBI Research anticipates that the first rate cut by the RBI may occur in the third quarter of FY25, with the subsequent rate cut cycle expected to be modest and aimed at enhancing liquidity. They also recommend continuing the stance towards the withdrawal of accommodation in upcoming MPC sessions. CPI inflation is predicted to approach the RBI's tolerance band in the first half of FY25, remaining close to 5% until May and then declining to 3% by July. For the entire fiscal year, CPI inflation is projected to average 4.5%.

ICRA predicts a status quo on rates and stance in the June 2024 monetary policy review, citing recent inflation data and strong economic growth. Union Mutual Fund expects the MPC to maintain the policy rate at 6.5% while shifting its stance to 'withdrawal of accommodation'. Nuvama Wealth Management suggests maintaining policy rates but shifting the stance from 'withdrawal of accommodation' to 'neutral', considering strong GDP figures, above-target CPI, and domestic consumption weaknesses.

The first MPC meeting after elections is a significant event that sets the tone for the economic policies of the new government. The committee is expected to strike a balance between promoting growth, controlling inflation, and maintaining macroeconomic stability. By considering fiscal policies, external factors, and long-term structural reforms, the MPC's decisions will be crucial in navigating the post-election economic landscape.