The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) started its three-day meeting on Tuesday, with analysts largely predicting that the benchmark interest rate will remain unchanged. The committee’s decision will be announced on August 8.
Deepak Agrawal, Chief Investment Officer of Debt at Kotak Mahindra AMC, foresees the repo rate staying at 6.50%. Despite a recent uptick in inflation to 5.08% due to rising food prices, core inflation remains steady at 3.10%. Agrawal noted that improvements in the fiscal deficit, recent declines in crude oil prices, and favourable monsoon conditions could help temper inflation in the coming months.
Global economic trends, including weaker data from the U.S. and rate cuts by major central banks, suggest a more dovish global stance. However, Agrawal expects the RBI to maintain its current rate but potentially shift to a neutral policy stance.
Shreya Sodhani, Regional Economist at Barclays, anticipates that the MPC will remain on hold, focusing on the inflation trajectory for the latter half of FY24-25.
“We maintain our forecast of an RBI rate cut in December, but note the risk of a delay if inflation does not progress in line with the RBI’s expectations. The timing of a rate cut by the RBI will also be influenced in the event of a significant global economic downturn weighing on domestic growth,” Sodhani said.
Anil Rego, Founder and Fund Manager at Right Horizons, predicts no rate hike due to healthy economic growth. He expects the RBI to keep rates steady until inflation falls below the 4% target or if the U.S. Federal Reserve cuts its rates.
Amit Goel, Co-Founder and Chief Global Strategist at Pace 360, believes the RBI might adopt a neutral stance rather than a hawkish one, given low core inflation and surplus liquidity.
“In a recent interview, RBI Governor Shaktikanta Das outlined a cautious approach to aligning inflation with the target. We believe the central bank will only begin easing once the drop in inflation is realized. This will have a positive impact on equities. It is advisable to book profits and gradually increase allocations in bonds and gold. We believe that, going forward, both bonds and gold will offer better performance opportunities compared to equities,” Goel said.
Shishir Baijal, Chairman and Managing Director at Knight Frank India, also expects the RBI to hold rates steady due to persistent inflationary risks and global economic uncertainties. He emphasized that a stable rate environment is beneficial for the Indian real estate sector.
Governor Das previously indicated that any change in the interest rate stance would be premature given the current inflation-target gap.