RBI MPC Preview: Repo Rate Hike Widely Expected As Inflation Remains Above 6 Per Cent
In a bid to contain inflation, the RBI has already increased the repo rate by a total of 250 basis points since May 2022
The Reserve Bank of India (RBI) Monetary Policy Committee (MPC) will announce its first bi-monthly monetary policy for the current financial year on Thursday. The MPC, led by Governor Shaktikanta Das, started its three-day meeting on April 3 (Monday).
Economists and analysts widely expect RBI to hike the interest rate by another 25 basis points and take the repo rate to 6.75 per cent. However, they also caution that policy tone needs to be balanced and in line with the current global headwind.
According to CNBC-TV18, most economists it spoke with said that they expect the RBI to continue its fight against inflation and follow the US Federal Reserve globally by hiking the lending rate by 25 basis points.
Srikanth Subramanian, CEO at Kotak Cherry talking to the Financial Express, echoed the same view. However, Srikanth added that RBI may decide to take a 25 bps hike in policy rates in the upcoming policy meeting and then take a pause.
In a bid to contain inflation the RBI has already increased the repo rate by a total of 250 basis points since May 2022. However, inflation has continued to remain above the RBI's comfort zone of 6 per cent most of the time.
Having remained below 6 per cent in November and December 2022, the retail inflation breached the RBI's comfort zone in January. Headline retail inflation rate was down to 6.44 percent in February from a three-month high of 6.52 percent hit in January, according to data released by the Ministry of Statistics and Programme Implementation.
The two key factors which the committee is expected to deliberate intensely while firming up the next monetary policy are elevated retail inflation and the recent action taken by central banks of developed nations especially the US Federal Reserve, the European Central Bank, and Bank of England.
The RBI has been tasked to ensure that retail inflation remains at 4 per cent with a margin of +/-2 per cent. However, it failed to keep the inflation rate below 6 per cent for three consecutive quarters beginning January 2022.
The MPC consists of three RBI officials and three external members appointed by the central government.
The external members are Shashanka Bhide (Honorary Senior Advisor, National Council of Applied Economic Research, Delhi); Ashima Goyal (Emeritus Professor, Indira Gandhi Institute of Development Research, Mumbai); and Jayanth R Varma (Professor, Indian Institute of Management, Ahmedabad).
In Its last meeting in February, 4 out of 6 MPC members voted to hike the policy rate. The minutes of the February 6-8 monetary policy committee (MPC) meeting released by the RBI showed that 2 of the 3 external members were not in favour of raising the key interest rate this month.
Committee member Jayanth R Varma was of opinion that raising the key interest rate was "not warranted" as inflationary expectations were diminishing and economic growth remained a concern.
Soumya Kanti Ghosh, State Bank of India's group chief economic adviser in a note on March 27 said, "RBI has managed inflation by frontloading the rate hikes, an appropriate policy response could be now looking through the cycle to gauge the impact of past rate hikes and take a considerate pause in April policy."
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