Monetary policy: Reserve Bank’s MPC starts 3-day deliberations

Mumbai: Amid expectations of another status quo on the key interest rates, RBI Governor Shaktikanta Das headed high-powered rate-setting panel MPC on Tuesday began its three-day meeting to firm up the next bi-monthly policy.

The decision of the six-member Monetary Policy Committee (MPC) would be announced on Thursday, August 10, by Governor Das.

Experts are of the view that the central bank may continue with the pause on the repo rate as concerns on the inflation front and keeping the borrowing cost stable to maintain the economic growth momentum persist.

The borrowing cost, which started rising in May last year, has stabilised with the RBI keeping the repo rate unchanged at 6.5 per cent since February when it was raised from 6.25 per cent. Later, in the two bi-monthly policy reviews in April and June, the benchmark rate was retained.

BofA Securities in a report said it expects the RBI MPC to deliver a hawkish hold on August 10 while retaining the stance as withdrawal of accommodation.

“We don’t see the recent tomato price spike to push the MPC to hike rates right away, we have seen such episodes in the past,” it said.

Dhruv Agarwala, Group CEO of Housing.com, said market analysts expect the central bank to opt for maintaining the current status quo on both interest rates and policy stance.

The RBI is closely monitoring inflation figures, particularly in light of the recent significant surge in prices of essential food items, including vegetables, he said.

“Given the ongoing global economic uncertainties and persistent geopolitical risks, it is likely that the RBI will continue to exercise a cautious approach and keep interest rates unchanged, leading to a rate pause in its upcoming policy decision,” Agarwala added.

The government has tasked the central bank to ensure retail inflation remains at 4 per cent with a margin of 2 per cent on either side. The central bank factors in the CPI to arrive at its bi-monthly monetary policy decision. Puneet Kaura, Managing Director & CEO of Samtel Avionics, an MSME which majorly manufactures products for defense and railways opined that it is going to be a tough call with regard to the interest rate for the Reserve Bank as both the Federal Bank and European Central Bank have raised their benchmark interest rates.

“It is expected that the RBI will continue with a pause for the third time in a row as inflation is likely to be benign in the wake of a good monsoon. The MSME sector which faces problems in getting institutional credit at competitive rates, however, would want the rates to come down,” he said.

India’s retail inflation based on Consumer Price Index (CPI) rose to a three-month high of 4.81 per cent in June, mainly on account of hardening prices of food. The inflation, however, remains within the RBI’s comfort level of below 6 per cent. The inflation data for July will be released on August 14.