RBI Expected to Hold Repo Rate Amid Global Uncertainty

Governor Shaktikanta Das of the Reserve Bank of India (RBI) is anticipated to make the announcement on the central bank's policy rates as the three-day Monetary Policy Committee (MPC) meeting comes to an end today. The RBI has kept the repo rate at 6.50% for the last nine sessions, thus the meeting, which started on October 7, has attracted a lot of attention.

Since the RBI took a cautious approach to strike a compromise between reining in inflation and spurring economic development, the repo rate has been constant. Prolonged inflationary pressures, especially in food prices, and uncertainty in the world economy are major considerations for the MPC.

In keeping with its monetary strategy, the RBI would be maintaining the repo rate for the eleventh consecutive meeting if it does so. The RBI must strike a balance between controlling inflation and promoting economic development.

The Monetary Policy Committee (MPC) of the RBI should maintain the key interest rates at current levels, according to a consensus poll conducted by Moneycontrol among 12 economists, bankers, and investment managers. This is consistent with the general perception in the market that the central bank will put controlling inflation and preserving liquidity ahead of pursuing more rate reduction.

The RBI's goal range of 2% to 6% was reached by All India Consumer Price Index (CPI) inflation in August, according to statistics from the Ministry of Statistics & Programme Implementation.

At 5.65%, food inflation is still high and higher than the central bank's medium-term goal of 4%. This, together with growing worries about inflation brought on by geopolitical unrest in West Asia, has contributed to an increase in the price of crude oil globally. In an effort to promote economic recovery following the epidemic, the RBI has chosen to maintain the status quo on the repo rate in spite of these obstacles.

But given the external pressures and uncertainty surrounding global markets, it will be interesting to observe if the central bank changes its position in light of today's news.

However, analysts have pointed out that the RBI would not alter its stance on policy until December.
"Even if core inflation is within the allowed range, the RBI is likely to keep rates in order to control headline inflation. M Govind Rao, a member of the Fourteenth Finance Commission and a former director of the National Institute of Public Finance and Policy, stated that it is conceivable for the RBI to adopt a neutral stance.

During its review meeting on September 18, the US Federal Reserve issued a sharp 50 basis point interest rate decrease. After keeping interest rates unchanged for eight meetings in a row, the US Fed announced the rate decreases.

"We predict that the RBI will shift its policy stance from "withdrawal of accommodation" to "neutral" at its upcoming MPC meeting on October 9, 2024, given the overall macroeconomic environment of elevated geopolitical tensions, core inflation that is gradually rising, volatility in oil prices, and high food inflation. Manoranjan Sharma, Chief Economist of Infomerics Ratings, stated, "We do not anticipate any rate action coming and the benchmark interest rates may not change."

The three new members of the monetary policy committee were chosen by the federal government earlier this month. Three members of the RBI and three outsiders chosen by the Central Government make up the MPC.

To Summarize

As the RBI concludes its MPC meeting, it's expected to keep the repo rate at 6.5% for the 11th session, balancing inflation control and economic growth. With food inflation high and global pressures rising, economists predict the central bank will maintain a cautious, neutral stance.