RBI MPC: Repo rate decision by Governor Das today; here's what to expect

RBI policy meet: The meeting started on Tuesday and will end with RBI governor Shaktikanta Das announcing the rates in the policy announcement on Thursday

The Reserve Bank of India's (RBI's) six-member monetary policy committee (MPC) is holding its three-day meeting to decide the key interest rates in India. The meeting started on Tuesday and will end with RBI governor Shaktikanta Das announcing the rates in the policy announcement on Thursday.

All eyes will be on the repo rate, currently at 6.5 per cent. It has been hiked by 250 basis points since May 2022. The banks in India fix their interest rates on deposits as well as on loans based on the repo rate.

The last MPC meeting was held between June 6 and 8.

RBI policy meet: What is MPC?

The MPC is a six-member committee that decides the monetary policy for the country. Their main mandate is to keep retail inflation in India under 4 per cent with a tolerance band of 2 to 6 per cent.

The committee consists of three external members and three officials of the RBI. The external members of the panel are Shashanka Bhide, Ashima Goyal and Jayanth R Varma. Besides Governor Das, the other RBI officials in MPC are Rajiv Ranjan and Michael Debabrata Patra.

India's retail inflation based on the Consumer Price Index (CPI) rose to a three-month high of 4.81 per cent in June, mainly on account of the hardening prices of food. The inflation, however, remains within the RBI's comfort level of below 6 per cent. The inflation data for July will be released on August 14.

RBI MPC meeting: What is the repo rate?

The repo rate, or repurchase option, is the rate decided by the RBI at which it gives loans to commercial banks against securities. It is used by the central bank to control the liquidity in the economy. During inflation, the repo rate is hiked to limit the availability of cash for spending.

An increased repo rate means the banks will offer higher returns on deposits, pushing people to deposit money in their bank accounts and sucking the liquidity out. At the same time, the lending rates are hiked, discouraging people from taking more loans and limiting their spending.

On the other hand, a lower repo rate leaves people with more money in their hands. This allows them to spend more and increase demand, pulling the country out of deflation or disinflation.

RBI monetary policy: What does the industry expect?

"While the inflationary pressures are upwards owing to primarily vegetables and some other food items, given that the inflation print is going to be below 6 per cent, the MPC can afford to continue with a pause," said Ranen Banerjee, Partner, Economic Advisory Services, PwC India.

"The demand continues to be weak at the lower value end of the spectrum and hence the Indian inflation continues to be a supply-side driven one. Thus, there is no immediate trigger for a rate increase. The commentary will continue to be hawkish with emphasis on data-dependent actions on the back of impacts seen from the rate increases by BoE, ECB and the US Fed."

According to Dhruv Agarwala, Group CEO, Housing.com, Proptiger.com and Makaan.com, "As the Reserve Bank of India (RBI) Monetary Policy Committee (MPC) meeting approaches, market analysts expect the central bank to opt for maintaining the current status quo on both interest rates and policy stance. The RBI is closely monitoring inflation figures, particularly in light of the recent significant surge in prices of essential food items, including vegetables. Given the ongoing global economic uncertainties and persistent geopolitical risks, it is likely that the RBI will continue to exercise a cautious approach and keep interest rates unchanged, leading to a rate pause in its upcoming policy decision."

Rohit Arora, CEO and co-founder, Biz2Credit and Biz2X, added, "In light of the Federal Reserve's recent 25 bps rate hike, the RBI may take a decision today to maintain steady interest rates."

"We expect the RBI MPC to keep the repo rate unchanged as the inflation rate in India remains within the upper threshold of tolerance. This will help the real estate sector maintain its current momentum," said Shishir Baijal, chairman and managing director, Knight Frank India.