The RBI MPC, which is starting its 3-day meeting on Tuesday to decide on the interest rate movement in the country, is expected to keep the repo rate unchanged at 6.50 per cent even as the retail inflation is showing a downward trend. The 6-member rate-setting committee is headed by Reserve Bank of India Governor Shaktikanta Das. The decision of the 43rd meeting of the MPC would be announced on Thursday, June 8.
Suvodeep Rakshit, senior economist, Kotak Institutional Equities, said, “April CPI inflation at 4.7 per cent was in line with expectations and benefitted from a favourable base effect similar to the March inflation print. Overall, the RBI will see this print favourably and remain on a pause in the June policy while maintaining a cautious outlook on inflation. We continue to pencil in repo rate to remain unchanged for an extended period subject to global growth prospects, central bank actions, and domestic growth prospects.”
The consumer price-based (CPI) inflation declined to an 18-month low of 4.7 per cent in April.
Aditi Nayar, chief economist and head (research & outreach) at ICRA, said, “Although the impact of a favourable base effect related to the escalation of geopolitical conflict is likely to have peaked in April 2023, ICRA foresees the CPI inflation to remain range-bound at 4.7-5 per cent in May-June 2023. With a dip in the CPI inflation below 5 per cent and surprisingly subdued IIP growth, we foresee a high likelihood of a pause from the MPC in its next meeting. However, a pivot to rate cuts appears quite distant.”
The government has mandated the RBI to ensure CPI inflation at 4 per cent with a margin of 2 per cent on either side.
Madan Sabnavis, Chief Economist, Bank of Baroda, said the RBI is most likely to continue to pause on the interest rates and retain repo rate at 6.5 per cent. “The reason is that inflation has come in lower than 5 per cent in April and will be even lower in May. This being the case, the view would be that past repo rate actions have had an effect on inflation and hence there can be another pause taken,” he said.
The policy stance, he added, will however remain with withdrawal of accommodation since there has already been an increase in liquidity as deposits increase due to the announcement of the exchange of the Rs 2,000 notes.
The RBI will also be monitoring the progress of the monsoon and the possible ill effects of El Nino which can affect the kharif harvest and hence impact prices, experts said.
“For the year, however, we see 25-50 bps cut in repo rate which will be post October only,” Sabnavis said.
President of PHD Chamber of Commerce and Industry Saket Dalmia said that at this juncture, status quo by RBI will support the demand trajectory in the country and maintain GDP growth on high road.
“We congratulate the RBI that the effectiveness of policy rates have proven strong with an increase of 250 bps in repo rate, inflation has come down by 310 bps. The ERPR (Effectiveness Ratio of Policy Rate), the ratio of increase in repo rate and decrease in inflation is 1.24; means with an increase of 1 basis point in repo rate, the country was able to reduce inflation by 1.24 basis points,” he said.
(With Inputs From PTI)
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