 "RBI to retain 6.5% rate as growth comfortable, inflation in check: Experts")
The Reserve Bank is likely to maintain the status quo on the short-term interest rate in its monetary policy review later this week, with inflation staying in comfort zone and economic growth moving at an accelerated pace, opined experts.
The RBI has left the benchmark policy rate (repo) unchanged in its past four bi-monthly monetary policies. The RBI had last increased the repo rate In February to 6.5 per cent, thus ending the interest rate hiking spree which began in May 2022 in the aftermath of Russia-Ukraine war and subsequent disruptions in the global supply chain resulting in high inflation in the country.
RBI Governor Shaktikanta Das-headed Monetary Policy Committee (MPC) is scheduled to begin its three-day deliberations on December 6. Das would unveil the decision of the six-member MPC on December 8 morning. The MPC meeting is scheduled for December 6-8, 2023.
India retained the tag of the world's fastest-growing major economy, with its GDP expanding by a faster-than-expected rate of 7.6 per cent in the July-September quarter on booster shots from government spending and manufacturing.
On expectations from the RBI's monetary policy, Madan Sabnavis, Chief Economist, Bank of Baroda, said the central bank is most likely to maintain the status quo on rates as well as stance this time.
"The high growth witnessed in Q2 in GDP will provide assurance that the economy is on track. The low core inflation numbers in the last few months will provide comfort that there is no need to increase rates even while headline inflation is likely to be volatile in the upward direction," he said.
Also Read
Some direction on liquidity will be useful to the market as the system is in deficit for quite some time, he said, and added there can be some upward revision in the GDP growth numbers though will not be very significant.
Aurodeep Nandi, India economist at Nomura, also expects the MPC to unanimously vote to pause at its December policy meeting.
"Of particular interest will be RBI's commentary around OMO sales, which were announced in the previous policy meeting, but tight liquidity conditions have so far made the implementation difficult. Our baseline view is that the RBI will continue with the policy and stance pause for now," Nandi said.
The government has mandated the central government to ensure that the retail inflation based on the Consumer Price Index (CPI) stays at 4 per cent, with a margin of 2 per cent on either side.
While anticipating the status quo on the key benchmark lending rate, R G Agarwal, Chairman of Dhanuka Group, said Indian agriculture must embrace technological advancements and implement farm mechanization to boost crop yields and improve farmers' livelihoods.
"This necessitates both public and private sector investments, which hinge on access to affordable financing. While both the Reserve Bank of India and the government have taken prior measures to address this issue, additional incentives, such as monetary and fiscal benefits, are required to promote farm mechanization," he added.
The retail inflation eased to a four-month low of 4.87 per cent in October, mainly due to cooling prices of food items. The Reserve Bank's Monetary Policy Committee (MPC), in its October meeting, projected CPI inflation at 5.4 per cent for 2023-24, a moderation from 6.7 per cent in 2022-23.
Mohit Jain, Managing Director, Krisumi Corporation, opined that this successive pause in interest rate hikes reiterates RBI's commitment to provide broad-based growth in the economy with financial stability.
"The policy decision will facilitate a stable ecosystem for economic activity. This will bring a sigh of relief for homeowners since they have been feeling the strain of increased interest rates on long-term loans. In the housing sector, a stable interest rate environment will not only foster confidence among potential buyers but also make housing loans more accessible and affordable," he added.
The MPC is entrusted with the responsibility of deciding the policy repo rate with the objective of achieving the inflation target, keeping in mind the objective of growth.
On his expectations from the MPC, Prasenjit Basu, Chief Economist, ICICI Securities, said with CPI inflation moderating to 4.87 per cent year-on-year in October 2023 "we expect the RBI to keep the policy repo rate unchanged at its next MPC meeting. The prospect of further easing in inflationary pressure is likely to result in the MPC moving to a neutral policy stance (from the previous stance of 'withdrawal of accommodation')."
The MPC consists of three external members and three officials of the RBI. The external members on the panel are Shashanka Bhide, Ashima Goyal, and Jayanth R Varma. Besides Governor Das, the other RBI officials in MPC are Rajiv Ranjan (Executive Director) and Michael Debabrata Patra (Deputy Governor).
(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)