RBI unlikely to change key rates this time too

Economic conditions have largely remained unchanged since the last policy. High-frequency indicators like PMI and GST collections do show that growth is on course. Concerns on inflation remain even though the last couple of numbers have come at less than 5% - Madan Sabnavis, Chief Economist, BoB

Mumbai: Reserve Bank of India (RBI) is unlikely to cut the benchmark interest rate at its upcoming monetary policy review meeting, taking place soon after the announcement of the Lok Sabha election results, amid inflation challenges, said experts.

The Monetary Policy Committee (MPC) may also go for status quo on other aspects of policy as economic growth is picking up, notwithstanding the elevated interest rate of 6.5 per cent (repo) prevailing since February 2023. The meeting of the Reserve Bank Governor Shaktikanta Das headed MPC is scheduled for June 5 to 7. The decision will be announced on June 7 (Friday). Results of the Lok Sabha elections will be announced on June 4.

The central bank last hiked the repo rate to 6.5 per cent in February 2023 and since then it has held the rate at same level in its previous six bi-monthly policies. If the interest rate remains untouched again on June 7, it would be the eighth time for the RBI to maintain the status quo on the benchmark repo rate.

On expectations from the June policy, Madan Sabnavis, Chief Economist, Bank of Baroda, said: “Economic conditions have largely remained unchanged since the last policy. High-frequency indicators like PMI and GST collections do show that growth is on course. Concerns on inflation remain even though the last couple of numbers have come at less than 5 per cent. The ongoing heat wave has affected prices of vegetables in particular and while the IMD has predicted a normal monsoon, it would be prudent to wait and monitor how it progresses.”

“Under these conditions, a status quo on policy rate and stance may be expected. It would be interesting to see, however, if RBI changes forecasts of GDP and inflation for FY25,” Sabnavis opined.

Sanjay Nayar, President of industry body Assocham, too said the central bank is expected to keep the repo rate unchanged in the ensuing MPC meeting as retail inflation remains above the target of 4 per cent.

“Though inflation has started receding, the macros would become clearer only after the monsoon season plays out in September. To get a sustainable balance between cyclical consumption-driven growth and inflation, investment growth to propel the supply side,” he added.

The government has mandated the Reserve Bank to ensure the consumer price index (CPI) based inflation remains at four per cent with a margin of two per cent on either side. The retail inflation based on the Consumer Price Index (CPI) was 4.83 per cent in April this year.