RBI MPC: Central Bank Unlikely To Cut Interest Rate On June 7 Amid Lok Sabha Election Results, Says Experts

RBI MPC: The meeting led by Reserve Bank Governor Shaktikanta Das of the Monetary Policy Committee (MPC) is scheduled from June 5 to 7, with the decision slated for announcement on Friday

RBI MPC: The Reserve Bank of India (RBI) is unlikely to reduce the benchmark interest rate during its upcoming monetary policy review meeting as per the experts. Additionally, the Monetary Policy Committee (MPC) may opt to maintain the current interest rate of 6.5 per cent (repo) due to the ongoing economic growth, which has been gaining momentum since February 2023.

The meeting led by Reserve Bank Governor Shaktikanta Das of the Monetary Policy Committee (MPC) is scheduled from June 5 to 7, with the decision slated for announcement on June 7 (Friday). This timing follows closely after the announcement of Lok Sabha election results on Tuesday. 

In addition, every economist surveyed by Bloomberg anticipates that the Monetary Policy Committee (MPC) will maintain the Reserve Bank of India's repo rate at 6.5 per cent on Friday.

Since the central bank last increased the repo rate to 6.5 per cent in February 2023, it has maintained this rate consistently over the past six bi-monthly policies. If the interest rate remains unchanged on June 7, it will mark the eighth consecutive time that the RBI has opted to maintain the status quo on the benchmark repo rate.

Madan Sabnavis, Chief Economist at Bank of Baroda, commented on the anticipated outcomes of the June policy, noting that economic conditions have remained relatively stable since the previous policy review. High-frequency indicators such as PMI and GST collections indicate that growth is proceeding as expected. However, Sabnavis highlighted lingering concerns regarding inflation despite recent figures staying below 5 per cent. 

He pointed out that the ongoing heat wave has notably impacted vegetable prices. While the IMD forecasts a normal monsoon, Sabnavis suggests it would be wise to observe its progression closely before making any significant decisions.

"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 said.

Sanjay Nayar, President of the industry body Assocham, also anticipated that the central bank would maintain the repo rate during the upcoming MPC meeting, citing retail inflation persisting 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 said.

CPI Inflation

The government has tasked the Reserve Bank with the responsibility of maintaining consumer price index (CPI) based inflation at 4 per cent, with a tolerance band of 2 per cent on either side. In April of this year, retail inflation, measured by the Consumer Price Index (CPI), stood at 4.83 per cent.

Aditi Nayar, Chief Economist at ICRA, commented that recent inflation data and the forecast for food and commodity prices indicate a likelihood of maintaining the current rates and stance in the upcoming June 2024 monetary policy review.

"This has been further cemented by the higher-than-forecast expansion in the Indian economy in Q4 FY2024, which led to the full year GDP growth printing above 8 per cent. As a result, the likelihood of a stance change in August 2024 followed by a rate cut in October 2024 has eased unless an abundantly well distributed monsoon quells food prices in a sustainable fashion," she added.

Inflation

The MPC is also tasked with determining the policy repo rate to meet the inflation target while also considering growth objectives. Ranen Banerjee, Partner and Leader of Economic Advisory at PwC India, suggested that the MPC will likely be compelled to maintain the current policy rates due to uncertainties and risks regarding inflation, along with increasing trends in commodity and oil prices.

"There is no urgency on rate action, too, as the growth is sustaining, and the US economic data also suggests that the US Fed will not cut rates before October 2024. The yields have softened without any rate action given the expected lower borrowings by the government from the high dividends from RBI," said Banerjee.

Banerjee also mentioned the possibility of taking action, such as reducing the Cash Reserve Ratio (CRR), to address liquidity challenges. 

Meanwhile, Manish Jaiswal, Eldeco's Group COO, anticipates that the RBI will keep the repo rate unchanged at the upcoming monetary policy meeting.

"This policy aims to stabilise the real estate market, make homes more affordable, and sustain growth. Stable home loan rates improve consumer confidence and enable more informed investment decisions. This favourable environment enables us to launch new projects and encourages buyers to invest confidently, thereby driving real estate sector growth and contributing to India's economic progress," he said.