As the Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) is all set to begin its three-day meeting on Tuesday, economists and experts said that the central bank is expected to continue the pause on June 8 and keep the repo rate unchanged at 6.5 per cent. The second bi-monthly monetary policy meeting for fiscal 2023-24 will be held from June 6-8 and RBI Governor Shaktikanta Das will announce the outcome on June 8. “In its upcoming MPC meeting, we expect the RBI to keep the repo rate unchanged at 6.5 per cent, continuing with a pause, as inflation, supported by statistical base, has moderated, and will likely remain so. This provides enough support for the RBI to keep its key policy rate unchanged,” said Shishir Baijal, Chairman and Managing Director, Knight Frank India.
India’s consumer price index (CPI) inflation eased sharply to 4.7 per cent in April 2023, coming under the RBI’s upper tolerance limit of 6 per cent and this signals further rate hike pause of rate cut from the RBI. The recorded rate for March 2023 was 5.66 per cent, as opposed to 6.95 per cent in the previous year. “Considering the drop in CPI inflation along with the effects on GDP and GST kitty, we anticipate that the MPC will continue to hold the pause button. In its previous policy, the MPC clearly stated that its next move would depend on data, and the latest inflation numbers were within the target range,” said Mahesh Agarwal, National Head – Wealth, AUM Capital Market Pvt Ltd. He added that the IMD’s forecast for a normal monsoon despite some concerns about El Nino, will provide support to the RBI. “Liquidity above 1.00 lac crores is comfortable as evident from WACR remaining around 6.25%, so no concern arising for the same,” he said.
Also, India recorded its GDP growth for the January-March quarter at 6.1 per cent in comparison to 4.5 per cent growth during the previous quarter of the financial year and 4 per cent during the fourth quarter of FY22. “The RBI MPC will have gained confidence on both the inflation and GDP growth trajectory. A wait-and-watch would work best now with the stance remaining cautious. We do not expect the RBI to change its inflation and GDP growth forecasts for FY2024,” said Suvodeep Rakshit, Senior Economist, Kotak Institutional Equities. The markets will focus on RBI’s commentary on liquidity with durable liquidity having increased sharply, he said.
Global factors at play?
From a global perspective, there has been a correction in global metal prices, and oil prices are also under control, both of which contribute to reducing the inflationary trend. Meanwhile, US Fed is also expected to forego an interest rate increase in its next meeting in June, even as chances of hikes remain for the later part of the year. “This prospect of the US raising rates will actually provide comfort to the RBI, as hiking rates in the US can exert pressure on the Indian currency and, ultimately, the interest rate. It is worth noting that the RBI has generally been successful in maintaining the currency within a tight range. Keeping in view all these factors collectively, we expect the MPC to maintain the current rates and the overall outlook appears to be stable,” said Mahesh Agarwal.
“The market doesn’t seem to be anticipating an immediate rate cut. The best case for the June policy would be a softer ‘stance’ by the MPC. In the absence of a major global risk event, we may be in for a prolonged policy pause,” said Churchil Bhatt, Executive Vice President & Debt Fund Manager, Kotak Mahindra Life Insurance Company Limited.
Deepak Agrawal, CIO – Debt, Kotak Mahindra Asset Management Company, also added, “Considering the prevailing ambiguity surrounding the future path of the Federal Reserve’s rates in the coming months, our perspective leads us to anticipate a dovish message from the MPC, implying that the RBI has concluded its tightening measures, all while maintaining the existing monetary policy stance.”
While India is in a “Goldilocks situation with strong GDP data, cool-off in inflation”, the country needs to remain vigilant against potential risks from an increase in crude oil prices or even the probability of El Nino or other unfavourable geopolitical developments. “The easing of inflationary pressure in India is creating some space for RBI for an extended pause in the policy interest rate. However, it is important to remain vigilant against potential risks from an increase in crude oil prices, the probability of El Nino to create drought conditions and unfavorable geopolitical developments. It is important for the RBI to stay on pause on the policy rate in the forthcoming policy review,” said Arun Singh, Chief Global Economist, Dun and Bradstreet.
Meanwhile, Rajani Sinha, Chief Economist, CareEdge Ratings, said, “The main risks to growth would be the threat of a severe El Nino that could jeopardise rural demand recovery. Global economic uncertainties are another risk to India’s economy in FY24. With GDP growth moderation not very concerning and CPI inflation above target, RBI is unlikely to cut rates in 2023.”
Headed by RBI Governor Shaktikanta Das, the other members of the MPC are: Shashanka Bhide (Honorary Senior Advisor, National Council of Applied Economic Research, Delhi); Ashima Goyal (Emeritus Professor, Indira Gandhi Institute of Development Research, Mumbai); Jayanth R Varma (Professor, Indian Institute of Management, Ahmedabad); Rajiv Ranjan (Executive Director, RBI); and Michael Debabrata Patra (Deputy Governor, RBI).