MUMBAI: The Reserve Bank of India (RBI) is expected to maintain rhe benchmark repo rate unchanged at 6.5% during its upcoming meeting from August 6 to 8. The decision is anticipated to align with the recent trend of holding rates steady while awaiting more macroeconomic data before considering any cuts.
The US Federal Reserve has recently opted to keep its interest rates unchanged, indicating potential monetary easing in the future. The RBI is closely monitoring US monetary policy and inflationary pressures before making adjustments to its own rates, which have been steady since February 2023.
Economic growth is showing signs of improvement, despite the current high interest rate. The Monetary Policy Committee (MPC), led by Governor Shaktikanta Das, has not changed the repo rate in its last seven bi-monthly reviews since it was raised to 6.5% in February 2023.
Madan Sabnavis, Chief Economist at Bank of Baroda, predicts that the RBI will likely maintain its current rate. He noted that while inflation remains high at 5.1%, it is expected to decrease in the coming months primarily due to base effects. Sabnavis emphasised that the RBI would prefer to wait until there is clear evidence of a sustained decline in inflation before making any rate changes.
Aditi Nayar, Chief Economist at ICRA, agrees, noting that the strong growth in FY2024 and the inflation rate of 4.9% in the first quarter are unlikely to prompt a change in the current rate stance. However, she suggested that if food inflation improves later in the year on account of normal monsoon in the second half, a rate cut might be considered in October, with potential reductions in December 2024 and February 2025, with an extended pause thereafter.
Last month, Governor Das had said the question of change of stance on interest rate is quite premature given the gap between current inflation and 4 per cent target.
The MPC, which includes three external members—Shashanka Bhide, Ashima Goyal, and Jayanth R. Varma—along with three RBI officials, is responsible for setting the policy repo rate with the dual objectives of managing inflation and supporting economic growth. The committee last increased the repo rate by 250 basis points cumulatively between May 2022 and February 2023.
Source: The Financial Express
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