The Reserve Bank of India (RBI) will likely move for one more pause in the upcoming June Monetary Policy Committee (MPC) meeting, as India’s consumer price inflation (CPI) moderated to almost 18-month low of 4.70% in April, due to a sharp deceleration in fuel inflation, SBI Research’s ‘Ecowrap’ report said.

SBI Research constructed four scenarios of repo rates by training the data of RBI rate deciding manner for the period of February 2022 to November 2022. In the fourth and most important scenario, wherein if MPC considers domestic CPI headline inflation, CPI core inflation and US Fed rate hikes, while taking a call on repo rate, the current repo rate would have been at 6.22%, the report said.

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“Given that the current rate of 6.5% is already higher than the required rate of 6.22%, we expect one more pause by RBI MPC meeting in June 23, while carefully watching the CPI and Core CPI number in ongoing months,” it said. Core CPI plunged to almost 3-year low to 5.06% in April as against 5.74% in March, mainly due to a decline in fuel and light CPI, which decelerated from 8.91% in March to 5.52% in April. For FY24, average CPI could be at 5.12% as compared to 6.66% in FY23, the report said.

Further, SBI Research said its machine learning model is also indicating that the terminal repo rate could decline to 6% with the next quarter, and this would possibly open up opportunities for RBI to look at the data trends more carefully for a rate action towards the end of the year.

After hiking the repo rate cumulatively by 250 basis points (bps) since May 2022 to 6.5%, the RBI paused on raising repo rate in the April MPC meet. RBI governor Shaktikanta had then said that the MPC decided to keep the policy rate unchanged to assess the progress made so far, while closely monitoring the evolving inflation outlook. “The MPC will not hesitate to take further action as may be required in its future meetings,” Das said.

Growth pangs

Even as the RBI is likely to leave repo rate unchanged in the upcoming MPC meeting, concerns remain on growth. SBI Research said India remains at the forefront of the most vulnerable countries to the likely adverse impacts of climate change, ranking 7th out of 181 in the Global Climate Risk Index 2021, despite measures initiated on Green House Gas emissions along with promoting renewable energy, among others.

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“More than 3/4th of Indian districts are considered hotspots for extreme climate events which have a direct bearing on price prints volatility (mostly supply side). It is evident that climate change poses a significant threat to India, impairing future growth materially if friction points remain significantly unchecked in time,” the report said.