RBI’s MPC will not change repo rate from current 6.5%

Chennai Despite food inflation and existance of continued geo-political and climate risks, the Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) will not change the interest rate from the current 6.5 per cent, economists have said. They also said the benchmark repo rate will remain constant till the last quarter of FY24.

Predicting that RBI will not change the repo rate, Bank of Baroda’s Chief Economist Madan Sabnavis told IANS: “The decision will be unanimous. Inflation could go towards 5.5 per cent to 6 per cent this month. Even in June due to edible oil prices inflation was lower at 4.8 per cent. Edible oil prices have started moving up in global markets now. With GDP growth steady at around 8 per cent this won't be a concern. Hence, the status quo to prevail.”

“The August meeting of the MPC will be the third successive one since April 2023 when the benchmark interest rate will be on hold at 6.5 per cent,” Suman Chowdhury, Chief Economist and Head -- Research, Acuite Ratings & Research, told IANS.

The current global scenario with persistent geo-political and heightened climate risks (impact of El Nino in particular) is likely to induce the “higher (rates) for longer” stance among the major central banks including RBI, Chowdhury said.

“The risks of a resurgence in oil and food prices along with resilient domestic demand and the relatively sticky core inflation levels may not permit any hasty pivot in monetary policy in the current calendar year. We forecast the benchmark repo rates in India to remain at the current levels till Q4FY24."

While Chowdhury expects the MPC decision to be unanimous he added that the debate on the language of the stance will continue as to whether RBI should transition from the “withdrawal of accommodation” to a “neutral” position.

“While there will be differences of opinion among the MPC members on this matter, we believe that the monetary policy stance will likely remain unaltered given the increased uncertainty on the inflation scenario."

On her part, Chief Economist of CARE Ratings, Rajani Sinha told IANS that RBI will follow a wait and watch policy and will not change the repo rate.

“While the recent increase in food inflation is more than the seasonal effect seen in previous years, the rise is likely to be transient in nature. The spatial distribution of rainfall so far has been skewed, however, the sowing of most Kharif crops (except for pulses) has been higher than last year.