RBI MPC: Rate-Setting Panel May Keep Repo Rate Unchanged On February 8

RBI MPC: Though retail inflation has moderated during the current fiscal year after reaching a peak of 7.44 per cent in July 2023, it remains elevated, registering at 5.69 per cent in December 2023

The Monetary Policy Committee (MPC), led by Reserve Bank of India (RBI) Governor Shaktikanta Das, commenced its three-day deliberations on Tuesday amid forecasts of a continuation of the current status quo on key lending rates. This anticipation comes as retail inflation hovers near the upper end of the central bank's comfort range.

For nearly a year, the central bank has maintained the repo rate at 6.5 per cent. The last adjustment to the benchmark interest rate occurred in February 2023 when it was raised from 6.25 per cent to 6.5 per cent to counter inflationary pressures stemming largely from global factors.

Although retail inflation has moderated during the current fiscal year after reaching a peak of 7.44 per cent in July 2023, it remains elevated, registering at 5.69 per cent in December 2023. Nonetheless, it remains within the RBI's target range of 4-6 per cent.

Governor Das is scheduled to announce the Monetary Policy Committee's decision on Thursday morning, February 8.

According to a report by State Bank of India (SBI), the RBI is likely to maintain its current stance in the forthcoming policy review.

"The robust US non-farm payroll data and wage figures have tempered market expectations for an imminent rate cut," the report stated, suggesting that the possibility of a rate cut could be most viable between June and August.

The state-run bank also predicts that the RBI will continue its policy of gradual withdrawal of accommodation.

SBI also projects that the Consumer Price Index (CPI) will hover around 5.4 per cent in the fiscal year 2023-24 and between 4.6 per cent and 4.8 per cent in the subsequent fiscal year (2024-25).

The government has mandated the RBI to maintain retail inflation, based on the Consumer Price Index (CPI), at 4 per cent with a margin of 2 per cent on either side.

Raoul Kapoor, co-CEO of Andromeda Loans, anticipates that the RBI will opt to retain the current interest rates. "This decision is largely influenced by the persistent challenge of high retail inflation, which remains uncomfortably close to the upper limit of the RBI's inflation target at 6 per cent. The current inflationary pressures necessitate a cautious approach," Kapoor said. While immediate interest rate cuts may not be imminent, Kapoor expressed optimism about the prospect of a supportive monetary policy stance in the near future.

The rate-setting panel is tasked with determining the policy repo rate to achieve the inflation target while considering growth objectives.

In a special meeting held in May 2022, the MPC raised the policy rate by 40 basis points, followed by subsequent hikes of varying magnitudes in each of the five subsequent meetings until February 2023. The repo rate increased by a cumulative total of 250 basis points between May 2022 and February 2023.

The MPC comprises three external members and three RBI officials. External members include Shashanka Bhide, Ashima Goyal, and Jayanth R Varma. Alongside Governor Das, the other RBI officials on the MPC are Rajiv Ranjan (Executive Director), and Michael Debabrata Patra (Deputy Governor).