RBI MPC: Rate Cut Expectations Fade Amid Inflation Risks, Says Economists

RBI Governor Shaktikanta Das has expressed his reluctance to consider easing measures until inflation stabilises around the 4 per cent target consistently

RBI MPC: The likelihood of the US Federal Reserve postponing its interest rate reductions offers some relief for the RBI

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Reserve Bank of India (RBI) is expected to maintain interest rates at their current level during its upcoming monetary policy meeting (RBI MPC) on Friday. All 38 economists surveyed by Bloomberg anticipate the central bank is keeping its benchmark repurchase rate steady at 6.5 per cent, marking the seventh consecutive meeting without a change. Despite the government's warning of an impending heatwave and better-than-expected economic growth, most economists predict the central bank will maintain a cautious approach. However, some speculate that it may hint at potential rate cuts in the future.

However, the prospect of easing monetary policy is challenged by concerns over increasing food prices and indications of robust demand in an economy expanding at nearly 8 per cent. RBI Governor Shaktikanta Das has expressed his reluctance to consider easing measures until inflation stabilises around the 4 per cent target consistently, thereby diminishing the likelihood of an imminent rate cut.

Repo Rates Likely To Remain Unchanged:

Santanu Sengupta, Goldman Sachs Group Inc.'s India economist, said that the RBI is expected to maintain its current interest rate, uphold the monetary policy stance of 'withdrawal of accommodation', express confidence in growth prospects, and reaffirm its commitment to achieving the 4 per cent headline inflation target, as per the report.

The likelihood of the US Federal Reserve postponing its interest rate reductions offers some relief for the RBI. Similar to other central banks in emerging markets, the RBI often monitors Fed policy to maintain stability in its currency exchange rates.

RBI’s Cautious Strategy:

According to a Bloomberg economist, the RBI's strategy is more cautious than needed. “The RBI’s approach is more hawkish than warranted. The economy needs stimulus. Growth is slowing. Food prices are set to slow sharply toward year-end as falling agricultural costs show up in retail prices. Surging FX reserves mean the RBI needn’t wait for the Fed,” the economist said.