RBI Monetary Policy Meeting Live Updates: Will RBI cut repo rate after US Federal Reserve interest rate cut?

Experts foresee a shift in the monetary policy stance from the present position of withdrawing accommodation to a neutral one. They have observed the Reserve Bank of India’s acceptance of excess liquidity in the banking system, interpreting it as a willingness to allow marginally more relaxed financial conditions while maintaining the current benchmark policy rate.

The central bank has allowed surplus liquidity conditions to prevail since July, with the exception of a brief period in September when quarterly advance tax payments temporarily drained funds from the system. This decision comes in the context of credit growth surpassing deposit growth and substantial foreign investments in Indian debt securities.

The Monetary Policy Committee (MPC) is also unlikely to reduce interest rates due to the recent surge in violence in West Asia, which has led to supply chain disruptions and increased risks to global commodity prices, in addition to the need to ensure a sustained decline in inflation. Over the past week, crude oil prices have risen by more than 5% as a result of the conflict in West Asia.

According to Reuters, Brent crude prices were up 5.03%, at $77.62 a barrel, amid concerns that the escalation could lead Iran to block the Strait of Hormuz, a crucial logistical choke point through which “a fifth of daily oil supply passes.”

The rise in crude oil prices is detrimental to India’s domestic trade and inflation, as the country heavily relies on imported oil. Consequently, the MPC is expected to maintain a cautious approach and refrain from lowering interest rates until the situation stabilizes and the inflation decline is sustained.

RBI MPC Meet Live: Madan Sabnavis, the chief economist at Bank of Baroda, believes that the current high inflation rates will continue for the upcoming months. He said, “I think we can all agree that high inflation has persisted and will remain there for the next few months.”

Given the ongoing war and persistent inflation, Sabnavis suggests that any changes in the interest rate and monetary policy stance would be premature at this point. However, he notes that the central bank’s forecasts on inflation will be of particular interest, especially whether they maintain their prediction of 4.5% inflation for the following year.

RBI MPC Meet Live: Despite a recent decline in headline retail inflation, with the August CPI reading at 3.65%, economists believe that an anticipated increase in the price gauge for September will hinder the RBI from following the lead of central banks in certain advanced economies and lowering interest rates.

The MPC’s target for headline retail inflation is 4%, with a tolerance band of 2 percentage points on either side of that. The central bank has been grappling with elevated food inflation for more than a year, primarily due to weather-related disruptions and supply side challenges.