RBI's rate-setting panel starts 3-day deliberations on monetary policy

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.

According to Deepak Agrawal, CIO-Fixed Income, Kotak Mahindra Asset Management Company, the second quarter inflation is likely to be a little over 6 per cent as against the RBI forecast of 5.2 per cent. This is due to a sharp spike in vegetable prices, particularly tomatoes.

However, he does not expect any spill-overs from food inflation to core inflation, as the rise in prices are expected to be temporary.

"This should be source of comfort for the RBI and we expect RBI to keep rates unchanged and continue with “withdrawal of accommodation” monetary policy stance," he said.

"Status quo is given in the MPC meeting this week, but the odds of interest rate hike or cut is equally poised going ahead. Global economic and inflationary environment are still not up to the mark because of renewed strengthening of crude oil prices and surge in global food prices on extreme weather conditions," Umesh Kumar Mehta, CIO of Samco Mutual Fund, said.

Kaushik Mehta, Founder & CEO of Ruloans Distribution Pvt Ltd said that the RBI's steadfast strategy of maintaining stable interest rates is likely to be the driving force for growth in retail loans, encompassing both personal and home loans.

By ensuring consistent and predictable borrowing costs, this approach fosters a favourable environment for businesses and individuals to invest or fulfil personal aspirations such as homeownership.

The last MPC meeting was held on June 6-8.

The MPC consists of three external members and three officials of the RBI. The external members of the panel are Shashanka Bhide, Ashima Goyal and Jayanth R Varma. Besides Governor Das, the other RBI officials in MPC are Rajiv Ranjan (Executive Director) and Michael Debabrata Patra (Deputy Governor).