The RBI Governor Shaktikanta Das-led Monetary Policy Committee (MPC) opened its three-day meeting on Wednesday expecting a Rate status quo bi-monthly review. Friday morning will disclose policy review. Retail and business interest rates would remain unchanged. The Reserve Bank is expected to maintain the benchmark rate at 6.5 percent due to strong inflation and global worries.

The Reserve Bank raised the policy rate progressively after the Russia-Ukraine war in May 2022 to 6.5% in February.
In three bimonthly monetary policy reviews since then, it has maintained the rate. “This credit strategy will likely maintain the current rate structure and stance. Thus, the repo rate will remain at 6.5% with accommodation withdrawal “Madan Sabnavis, Bank of Baroda Chief Economist, agreed.

Retail inflation is still high at 6.8% and anticipated to fall substantially in September and October, but there is still pessimism about Kharif output, especially pulses, which could raise prices. Since inflation is falling, a rate hike is unlikely. The MPC may decrease the repo rate later, he said. “With inflation still high, a policy rate reduction seems unlikely, but in the interest of MSMEs and the economy as a whole, we expect the RBI to maintain the status quo as any further increase will hurt economic growth,” said Puneet Kaura, CII Delhi State Council chairman and Samtel Avionics MD & CEO.

ICRA Senior Vice President & Group Head – Financial Sector Ratings Karthik Srinivasan anticipates the MPC to maintain the policy rate and attitude. With the release of cash from incremental CRR in previous policy, “the significant tightening in liquidity that was seen in the second half of September is unlikely to sustain,” he said.He added that RBI may be apprehensive about significant interest rate increases in developing economies since the last policy review and their effects on capital flows, FX reserves, and the exchange rate.

The government requires the Reserve Bank to keep CPI-based inflation at 4% with a 2% buffer. NAREDCO president Rajan Bandelkar expects RBI’s accommodative posture to continue at the October MPC meeting. “Despite the long repo rate pause, we must focus on real estate, especially around the holidays. Positive RBI steps now could help us meet our housing goals “added.

Since February, when the repo rate was hiked from 6.25 percent, the borrowing cost has stabilized around 6.5 percent. The benchmark rate was kept in later bimonthly policy reviews in April, June, and August. Union Asset Management Company head-fixed income Parijat Agrawal expects headline inflation to fall in September but remain beyond RBI’s comfort zone. “The recent rise in crude oil and global bond yields will keep MPC vigilant on inflation-growth dynamics. Agrawal expects the MPC to maintain rates and stance at its October meeting.

The MPC sets the policy repo rate to meet the inflation target and promote growth. In an off-cycle meeting in May 2022, the MPC hiked the policy rate by 40 basis points. In the five sessions that followed, the rate was raised by varied amounts until February 2023. The repo rate rose 250 basis points between May 2022 and February 2023. The MPC has three RBI staff and three external members. External panelists Shashanka Bhide, Ashima Goyal, and Jayanth R Varma. RBI Executive Director Rajiv Ranjan and Deputy Governor Michael Debabrata Patra join Governor Das in MPC.

Conclusion:-

The RBI Monetary Policy Committee (MPC) is set to maintain rates during its three-day meeting on Wednesday. High inflation and global concerns cause many to expect the Reserve Bank to hold the benchmark rate at 6.5%. Retail inflation is 6.8% and expected to fall in September and October. In May 2022, the RBI raised the policy rate in tranches and has maintained it in the last three bimonthly monetary policy reviews. Retail inflation is likely to fall considerably in September and October, but Kharif output, especially pulses, could raise prices. The RBI is expected to be wary about rapid interest rate increases in developing economies since the last policy review and their effects on capital flows, forex reserves, and the currency rate.

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