The Reserve Bank of India (RBI) will announce its monetary policy for the first bimonthly review of the financial year 2023-24 on Thursday. RBI governor Shaktikanta Das will announce whether the monetary policy committee (MPC) has decided to continue or pause the rate hikes. Since May 2022, the RBI has increased the benchmark interest rate by 250 basis points. Currently, the repo rate stands at 6.5 per cent. This is the highest level since February 2019.
If another rate hike is announced tomorrow, it will take the repo rate to the highest level since April 2016, when it was 6.75 per cent.
Business Standard spoke to various experts about their expectations from the MPC announcement. Most of them said that the RBI would likely go with a 25 bps hike this time, in continuation with the last MPC announcement. Some, however, said that pausing the rate hike cycle would be prudent.
“The RBI is expected to go in for one more round of repo rate increase of 25 basis points in the forthcoming monetary policy review meeting. The current macroeconomic uncertainties in the country and sticky inflation, coupled with global tightening and control are expected to prompt RBI to be cautious and continue with the rate increase. The supply side issues, likely to be created, due to unseasonal rains damaging the crops is another pressing factor for the additional inflation control requirement,” said Jyoti Prakash Gadia, managing director (MD) at Resurgent India.
“The market’s expectation is for a 25 bps hike in April, which would be a continuation of a decelerating trend in hikes both by the RBI and global peers,” said Utkarsh Sinha, MD at Bexley Advisors.
The consumer price index-based inflation — the main yardstick of the central bank for policy-making purposes — was 6.44 per cent in February and 6.52 per cent in January. The core inflation (CPI inflation excluding food and fuel) has, however, been sticky in recent times.
The RBI is mandated to keep inflation at 4 per cent — within a band of 2 per cent on either side. Average inflation staying beyond this band for three consecutive quarters constitutes a failure.
In 2022, the average inflation was above 6 per cent in January-March, April-June, and July-September quarters.
In a poll conducted by
Business Standard earlier this week, a majority of respondents, like the Bank of Baroda, Punjab National Bank, Icra, Barclays and Goldman Sachs, recommended a 25 bps hike.
But not all agree with this.
Time to press the pause button?
Some experts believe that the MPC should not hike the repo rate further and wait for the impact of previous hikes.
“The rate hikes have been playing havoc across the international markets causing financial stability risks within the banking systems across US and Europe. India has a different strong domestic growth story and it would be worthwhile to decouple from the Fed and for the RBI to pause a rate hike in this cycle and evaluate the economy markers till the next MPC,” said Vivek Iyer, partner at Grant Thornton Bharat.
In the previous policy review, two members of the MPC, Ashima Goyal and Jayanth Varma, had voted to pause the rate hikes.
“Given that the inflation in India is more supply-led than demand-led and the full transmission of impacts of earlier hikes are still to be realised, we may have more members dissenting to a hike in rates in this meeting. It will be more prudent for the MPC to pause and move to data-dependent actions going forward. We should not err towards tightening the policy too much on the lines of keeping it too loose for too long when the inflation was being perceived as transitory before the commencement of the rate hike cycle,” said Ranen Banerjee, leader of Economic Advisory Services at PricewaterhouseCoopers (PwC).
In the BS Poll too, the State Bank of India (SBI) and Bandhan Bank recommended a pause on rate hikes.
