RBI’s rate-setting panel starts deliberations

Mumbai: RBI Governor Shaktikanta Das-headed Monetary Policy Committee (MPC) started its three-day meeting on Wednesday amid expectations of a status quo on the rate front in its bi-monthly monetary policy review.

The policy review will be announced on Friday morning. In case of a status quo, interest rates for retail, as well as corporate borrowers, would remain stable. Experts believe that the Reserve Bank will retain the benchmark rate at 6.5 per cent in view of the elevated inflation and global factors. The Reserve Bank started increasing the policy rate in May 2022 in tranches, in the wake of the Russia-Ukraine war and took it to 6.5 per cent in February this year. Since then, it has kept the rate unchanged in the last three successive bi-monthly monetary policy reviews. “The credit policy this time will most likely continue with the existing rate structure as well as policy stance. Hence, the repo rate will be retained at 6.5 per cent with the stance of withdrawal of accommodation,” opined Madan Sabnavis, Chief Economist, Bank of Baroda. He further said retail inflation is still high at 6.8 per cent and expected to come down sharply in September and October, but there is still some pessimism on Kharif output especially relating to pulses which has the potential to push up prices further.

“But as the inflation trajectory is downwards, a rate hike can be ruled out. However, we may have to wait for a longer time for the MPC to cut the repo rate,” he said. “With inflation still remaining high, a reduction in policy rate looks remote, but in the interest of MSMEs and the economy as a whole, we expect the RBI to maintain the status quo as any further increase will start hurting the growth of the economy,” Puneet Kaura, chairman, CII Delhi State Council and MD & CEO, Samtel Avionics said. Karthik Srinivasan, Senior Vice President & Group Head - Financial Sector Ratings, ICRA also expects the MPC to maintain status quo on the policy rate as well as the stance. “The significant tightening in liquidity that was seen in the second half of September is unlikely to sustain, particularly with the release of liquidity from incremental CRR imposed in previous policy,” he said.

He further said, RBI is likely to remain cautious on sharp rise in interest rates in developing economies since the last policy review and the impact it may have on the capital flows, forex reserves and the exchange rate as well. The Reserve Bank has been mandated by the government to ensure the Consumer Price Index (CPI)-based inflation remains at 4 per cent, with a margin of 2 per cent on either side.