RBI MPC Expected to Maintain Pause on Repo Rate Amidst Stable Inflation

The Monetary Policy Committee (MPC) led by RBI Governor Shaktikanta Das began its three-day session on Tuesday to deliberate on the upcoming bi-monthly policy. The decision of the six-member MPC is scheduled to be announced on Thursday.

Analysts are anticipating that the central bank might choose to keep the current pause on the repo rate unchanged. The borrowing cost, which had been on an upward trajectory since May of the previous year, has stabilized due to the RBI consistently maintaining the repo rate at 6.5 percent, following its upward adjustment from 6.25 percent in February. As a result, both the April and June bi-monthly policy reviews witnessed no alteration in the benchmark rate.

Forecasts for RBI’s MPC Meeting Ranen Banerjee, Partner at PwC India’s Economic Advisory Services, conveyed, “Although inflationary pressures are rising due to primary vegetables and certain other food items, given that inflation is expected to remain below 6%, the MPC can likely continue the pause.” He emphasized that the yield differential between the US and India remains nearly the same as it was two months ago, and the reserves have strengthened, surpassing USD 600 billion. Thus, no immediate pressure or concern is emerging from that aspect.

Furthermore, he noted that demand remains weak at the lower end of the value spectrum, causing Indian inflation to be supply-side driven. Consequently, there is no immediate impetus for a rate hike.

Banerjee stated, “The commentary will continue to adopt a cautious stance, emphasizing data-dependent actions in response to the effects observed from rate hikes by the Bank of England, European Central Bank (ECB), and the US Federal Reserve.”

Rohit Arora, Chief Executive and Co-founder of Biz2Credit and Biz2X, shared his perspective, suggesting, “Given the recent 25 bps rate hike by the Federal Reserve, the RBI may decide to maintain interest rates at their current levels.”