In light of inflation worries, the RBI may maintain its current interest rate

At its forthcoming monetary policy review, the Reserve Bank is anticipated to keep the benchmark interest rate on hold due to ongoing worries about inflation and the need to keep borrowing costs constant in order to preserve the pace of economic development.

The Monetary Policy Committee (MPC) meeting, which will be presided over by the Governor of the RBI, is set for August 8–10. Governor Shaktikanta Das will make the announcement on the policy on August 10.

The borrowing cost, which began to rise in May of last year, has stabilized as a result of the RBI maintaining the repo rate at 6.5 percent after it was hiked from 6.25 percent in February. The benchmark rate was later maintained in the two bimonthly policy reviews in April and June.


According to Swarup Kumar Saha, managing director of Punjab & Sind Bank, the RBI takes into account a variety of issues, including world events. Therefore, it will also include recent interest rate increases made by numerous central banks, including the US Fed. Yields in the domestic markets have decreased as a result of rising interest rates.


“Based on the overall picture, I predict that the RBI will keep the repo rate where it is. If the situation across the world is steady, the interest rate should remain unchanged for the next two to three quarters, according to Saha.


Tribhuwan Adhikari, the managing director of LIC Housing Finance, said that it is doubtful that the central bank would change interest rates or maintain the status quo in the forthcoming monetary policy review.


According to Adhikari, the interest rate is anticipated to be steady in the foreseeable future.


The government has given the central bank the responsibility of ensuring that retail inflation stays at 4% with a margin of 2% on each side. The CPI is taken into account by the central bank when making its bimonthly monetary policy decision.


According to Yes Bank Chief Economist Indranil Pan, the MPC is unlikely to consider changing the rate or attitude of policy in light of the local spike in vegetable prices driven by the tomato.


According to Pan, the choice would also be based on the persistent firmness in the advanced nations’ macrodata flows, which is probably causing uncertainty about the cycle of rate increases in the AEs, particularly the US.


“The rate disparity between India and the US has reached historically low levels and may soon have an impact on flows. In its communication, we would anticipate the RBI to sound somewhat cautious and hence hawkish. According to Pan, the RBI is anticipated to raise its own inflation forecast for the remaining fiscal year while maintaining the same growth predictions.


Consumer Price Index (CPI)-based retail inflation in India reached a three-month high of 4.81 percent in June, mostly due to rising food costs. However, the inflation continues to stay below the RBI’s comfortable range of 6%. On August 14, the inflation statistics for July will be made public.


According to Pankaj Pathak, Fund Manager- Fixed Income, Quantum AMC, expectations from the MPC have risen since the latest RBI decision. Sharp increases in vegetable costs have raised the anticipated inflation rate for the next two to three months over 6%. Prices for pulses and cereal have also increased.


“We anticipate the RBI to retain its policy stance as a removal of accommodation and stay on hold. They may increase their CPI inflation prediction for FY24 by 20 to 30 basis points, to a range of 5.3% to 5.4%. The market has already begun to anticipate a hawkish halt, according to Pathak.


The most recent MPC meeting took place from June 6–8.


Three external members and three RBI employees make up the MPC. Shashanka Bhide, Ashima Goyal, and Jayanth R Varma are the panel’s external members. Deputy Governor Michael Debabrata Patra and Executive Director Rajiv Ranjan are the two RBI representatives in the MPC in addition to Governor Das.




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