Jun 06, 2024 01:48 PM IST
Experts believe the RBI will maintain current policy rates and stance amidst food price volatility and global factors.
With volatile food prices, ongoing geopolitical tensions, and the Federal Reserve’s extended pause on interest rates, experts believe the Reserve Bank of India (RBI) will maintain its current policy rates and stance, according to a Mint report.
The RBI’s Monetary Policy Committee (MPC) commenced its June policy meeting in the backdrop of robust economic growth and declining inflation. The three-day meeting began on Wednesday, June 5, and the decision is due on Friday, June 7.
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India’s Consumer Price Index (CPI) inflation, also known as retail inflation, eased to a 11-month low of 4.83% n April, while the country’s gross domestic product (GDP) growth for the financial year 2023-24 beat estimates by coming at 8.2 per cent.
RBI last hiked the repo rate to 6.5 per cent in February 2023. As per experts, the central bank may keep the benchmark policy rates at the current level until October.
Let’s take a look at four key reasons that may lead the RBI MPC to maintain a status quo on policy rates and stance.
Volatile food prices
Volatility in food prices remains a concern despite the overall headline inflation easing.
The food and beverages inflation remains elevated, averaging 7.7 per cent in the first four months of the calendar year 2024, led by double-digit inflation in vegetables and pulses, said credit rating and analytics group CareEdge, in a report.
“Sustained inflationary trends in non-perishable food categories, such as pulses, spices and cereals raise concerns about the potential broadening of price pressures due to their inherent stickiness,” the report read.
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The Fed’s influence
Analysts say it is highly improbable that the RBI will precede the US Fed in cutting policy rates as the interest rate differential between the US and India is at historic lows.
“The RBI has also been indicating that India’s monetary policy reaction function crucially depends on domestic conditions and US Fed may not have much of an impact. However, we think that RBI is unlikely to precede the Fed in this rate-cutting cycle as the interest rate differential between the two economies is at historic lows,” said Yes Bank, according to a Mint report.
The 4% inflation target still far
According to a poll of 13 economists by Financial Express, the six member committee is likely to keep repo rate unchanged at 6.50 per cent. The survey also showed around 30 per cent of the economists believe the RBI will likely start cutting rates in the October-December quarter (Q3 2024-2025) or in the first half of calendar year 2025.
Analysts at YES Bank and CareEdge believe it is highly unlikely that the RBI will deviate from the 4% inflation target.
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Clarity on policy
After the Lok Sabha election, the central bank needs to closely observe the direction of the policies and the Union Budget next month, and decide on the rates accordingly, as per the Mint report.
