MPC meet: RBI to maintain repo rate at 6.5%
Experts expect the policy stance of the central bank to remain withdrawal of accommodation, given increase in the liquidity in the banking system.
MUMBAI: After surprising the market with a repo rate cut in April, the Reserve Bank of India (RBI) is expected to maintain the status quo and leave the repo rate unchanged at 6.5% in its monetary policy review meeting. The downward trajectory of inflation, trend in economic growth, monsoon and global economic conditions will influence the decision of RBI’s Monetary Policy Committee (MPC), which will be announced on Thursday. The three-day meeting of RBI’s six-member MPC began on Tuesday.
The members of the MPC, headed by Reserve Bank Governor Shaktikanta Das, will be relieved by the recent fall in the prices. The consumer price-based (CPI) inflation has declined to an 18-month low of 4.7% in April. It was the second month in a row that inflation remained within the RBI’s comfort zone of below 6%. Retail inflation was 5.66% in March 2023 and 7.79% in the year-ago period.
The central bank expects inflation to fall further as it estimates CPI inflation to be 5.2% for the current fiscal.
“RBI MPC will have gained confidence in both the inflation and GDP growth trajectory. A wait-and-watch would work best now with the stance remaining cautious. We don’t expect RBI to change its inflation and GDP growth forecasts for FY24,” Suvodeep Rakshit, Senior Economist, Kotak Institutional Equities told this newspaper.
“The markets will focus more on the central bank’s commentary on liquidity with durable liquidity having increased sharply. Overall, we maintain our expectations of a pause from the RBI in the June policy without changing its stance,” he said.
Experts expect the policy stance of the central bank to remain withdrawn from the accommodation, given the increase in the liquidity in the banking system.
Liquidity surplus in the system has increased with the Net Liquidity Adjustment Facility (LAF) absorption at Rs2.4 lakh crore as on June 1 compared to a surplus of `2.1 lakh crore at the beginning of the fiscal year. Liquidity is likely to increase further in the coming months owing to the deposit of `2000 notes.
“The stance could continue to be withdrawal of accommodation, as liquidity has turned into significant surplus mode,” said Soumya Kanti Ghosh, Group Chief Economic Adviser, SBI.
The central bank will keep a close watch on the progress of the monsoon and the effects of El Nino, which has emerged as a key concern and can affect the kharif harvest and hence impact prices.