The Reserve Bank of India’s Monetary Policy Committee kickstarted its three-day meeting on Tuesday, deliberating interest rates and analysing the state of the economy. The RBI MPC is a six-member committee entrusted with the task of setting India’s benchmark interest rate started its deliberations on August 6 and the meeting will end on August 8. The repo rate announcement directly impacts borrowing costs for banks and indirectly influences loan interest rates for businesses and individuals. RBI Governor Shaktikanta Das will announce the decision of the committee on interest rate at 10 am on August 8.
The August meeting is the third after the new financial year started from April 1, the first meeting held on April 3-5 and the second was held on June 5-7, and the fourth meeting of 2024 after the February Policy meeting which was held between February 6-8. The MPC meets invariably for 3 days before announcing its decision at the end of the 3-day period. The next RBI MPC meeting is scheduled on October 7-9.
What are the expectations?
According to the majority of economists, the central bank is expected to keep its repo rate unchanged at 6.50 per cent after its deliberations, continuing its stance of ‘withdrawal of accommodation’.
Dr Manoranjan Sharma, Chief Economist, Informerics Ratings, said, “Our take is that the MPC’s stance in the forthcoming Policy will continue to be “withdrawal of accommodation” and the repo rate will be kept unchanged for the ninth consecutive time. Why do we say so? Despite 7-8 per cent steady growth in Asia’s third-largest economy, all is not well on the inflation front-not by a long shot. These concerns are manifested in inflation breaching the 5 per cent mark in June 2024 and persistently sticky food inflation despite continuously declining core inflation.”
“Given heightened geopolitical dynamics, geoeconomic fragmentation and the RBI’s unequivocal mandate of monetary stability, which is characterised by moderate and stable inflation, there is a compelling need for caution and vigil on the inflation score. In other words, “if it ain’t broke, don’t fix it”,” he added.
The US Fed’s action at the September meeting also has a bearing on charting the course of monetary policy. A rate cut by the US Fed is on the cards and this rate cut would have spillover effects across the development spectrum including inducing central bankers to move to a less restrictive Policy.
Sharad Chandra Shukla, Director, Mehta Equities Ltd, said, “The monetary policy review (MPC) will maintain its status quo as the GDP growth is still strong. However, the policy stance may change as the core inflation is still not within manageable limits. On the global front, the Fed will turn cautious due to US labour market concerns. RBI will not do any rate cuts in the FY 2024-25.”
The RBI had last increased the repo rate by 25 basis points (bps) on February 8, 2023, to 6.5 per cent. One basis point is one-hundredth of a percentage point. The RBI MPC had announced the repo rate at 6.25 per cent during its December 2022 meeting.
An introduction to six-member monetary policy committee
The panel headed by RBI Governor Shaktikanta Das has three external members. It can be noted that Shaktikanta Das’ term as the RBI Governor is set to end in December this year. Other members of MPC are Shashanka Bhide, Ashima Goyal, Jayanth R Varma, Rajiv Ranjan, and Michael Debabrata Patra. Every member of the MPC has one vote, and in the event of an equality of votes, the Governor has a second or casting vote.
Here are dates for RBI’s MPC meetings this financial year
April 3-5, 2024
June 5-7, 2024
August 6-8, 2024
October 7-9, 2024
December 4-6, 2024
February 5-7, 2025
A look at the timeline of MPC meetings the previous year and announcements by the central bank on the repo rate:
6th April 2023: During its April 2023 meeting, the RBI MPC decided not to hike the country’s repo rate, keeping the key lending rate at 6.5 per cent. The RBI MPC, with a 5:1 majority, maintained the withdrawal of accommodation stance. The RBI had also stated the real GDP growth projection for FY24 was at 6.5 per cent.
8th June 2023: The RBI governor, during its June 2023 meeting, had said that the MPC has decided to keep the key policy repo rate unchanged at 6.5 percent. “MPC also decided by a majority of five out of 6 members to remain focused on withdrawal of accommodation to ensure inflation aligns with the target while supporting growth,” RBI Governor Shaktikanta Das had said. He also said that the standing deposit facility rate remained at 6.25 per cent, and marginal standing facility rate and bank rate remained unchanged at 6.75 per cent.
10th August 2023: After its three days meeting in August, the RBI governor said that the MPC decided to keep the key policy repo rate unchanged at 6.5 per cent, maintaining status quo for the third time in a row. The MPC voted in 5:1 majority to maintain the ‘withdrawal of accommodation’ stance to ensure that inflation progressively aligns with the target, while supporting growth, Shaktikanta Das had said. “Consequently, the standing deposit facility (SDF) rate remains at 6.25 per cent and the marginal standing facility (MSF) rate and the Bank Rate at 6.75 per cent,” he had added.
6th October 2023: RBI MPC had announced that the central bank decided to keep the repo rate unchanged at 6.50 per cent and stance of ‘withdrawal of accommodation. The RBI governor had said, “After a detailed assessment of the evolving macroeconomic and financial developments and the outlook, RBI’s Monetary Policy Committee decided unanimously to keep the policy repo rate unchanged at 6.5 per cent.” The RBI MPC had also mained FY24 GDP target at 6.5 per cent. “GDP to soften in subsequent quarters in FY24 with Q4 growth seen around 5.7 per cent,” he had said.
8th December 2023: During its December meeting, the RBI MPC had announced its decision to keep the repo rate unchanged at 6.50 per cent. This was the fifth meeting wherein the MPC decided to maintain the status quo on the repo rate. “The Reserve Bank of India’s Monetary Policy Committee after a detailed assessment of the evolving macroeconomic developments, has decided unanimously to keep the repo rate unchanged at 6.5 per cent,” RBI Governor Shaktikanta Das had said. The RBI governor had said that FY24 real GDP growth was projected at 7 per cent. Real GDP growth for the next year was projected at 6.7 per cent in Q1, 6.5 in Q2 and 6.4 in Q3.
8th February 2024: During its February 2024 meeting, the RBI MPC had decided to keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 6.50 per cent. The MPC had also decided to remain focused on withdrawal of accommodation to ensure that inflation progressively aligns to the target, while supporting growth.
5th April 2024: After its April 2024 meeting, the Reserve Bank of India’s Monetary Policy Committee unanimously decided to keep the key interest rates unchanged at 6.50 per cent. The policy stance was also maintained at ‘withdrawal of accommodation’, Shaktikanta Das had said. The RBi governor had said that the GDP growth forecast for FY25 was at 7 per cent. The quarterly projections are – Q1 at 7.1 per cent; Q2 at 6.9 per cent; Q3 at 7 per cent and Q4 at 7 per cent.
June 7 2024: The RBI Governor, after the June meeting, had announced that the MPC had decided to keep the benchmark repo rate unchanged at 6.5 per cent for the eight consecutive time by a 4:2 majority. It also decided to continue with its stance of ‘withdrawal of accommodation’. RBI raised its GDP growth forecast for FY25 to 7.2 per cent from 7 per cent earlier. The central bank retained the FY25 inflation forecast at 4.5 per cent.