“RBI MPC Expected to Maintain Repo Rate Pause: Analysts Assess Economic Course”
Analysts anticipate that the RBI Governor-led Monetary Policy Committee may continue the pause on the repo rate, reflecting cautious economic outlook and stable inflation trends.
The Monetary Policy Committee (MPC), led by Reserve Bank of India (RBI) Governor Shaktikanta Das, has commenced its three-day session to deliberate on the upcoming bi-monthly policy. The decision of the six-member MPC is scheduled to be announced on Thursday, and analysts predict that the central bank will likely opt to maintain the current pause on the repo rate.
After experiencing an upward adjustment in May last year, the borrowing cost has stabilized due to the RBI’s consistent maintenance of the repo rate at 6.5 percent, following its earlier increase from 6.25 percent in February. In both the April and June bi-monthly policy reviews, the benchmark rate remained unchanged, reflecting the cautious approach of the central bank.
The prevailing inflationary pressures, primarily driven by factors such as fluctuations in primary vegetable prices and certain food items, have led to discussions around the course of the repo rate. Despite these pressures, experts suggest that the inflation rate is expected to remain below 6 percent, allowing the MPC to continue with its current stance of maintaining a pause on rate adjustments.
Ranen Banerjee, Partner at PwC India, emphasized that the yield differential between the United States and India remains similar to previous months, and India’s reserves have strengthened, crossing the USD 600 billion mark. These factors contribute to a favorable economic outlook, and experts believe there is no immediate pressure necessitating a rate increase.
Banerjee further noted that weak demand persists at the lower end of the value spectrum, indicating that the inflationary trends are supply-side driven. This aspect, combined with the global context of recent rate hikes by institutions like the Bank of England, European Central Bank, and the US Federal Reserve, will likely influence the RBI’s stance.
Rohit Arora, Chief Executive and Co-founder of Biz2Credit and Biz2X, highlighted the impact of the recent 25 basis point rate hike by the Federal Reserve. Arora suggested that in response to challenges such as rising food inflation and increasing oil prices, the RBI might choose to maintain steady interest rates, taking into account the need for a strategic and well-considered approach.
As India’s economy navigates various external and internal factors, including global interest rate dynamics and domestic inflation trends, the upcoming MPC decision will play a significant role in shaping the nation’s monetary policy for the months ahead.
Sources By Agencies
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