NEW DELHI: The Reserve Bank is likely to maintain the status quo on policy rates for the fourth time in a row at the bimonthly monetary policy review meeting early next month, as retail inflation remains elevated and the US Federal Reserve has decided to maintain an aggressive stance for the time being to take. more time, according to experts.
The Reserve Bank had raised the benchmark interest rate to 6.5 percent on February 8, 2023, and has since maintained interest rates at the same level in view of persistently high retail inflation and certain global factors, including high crude oil prices in international markets. market.
The meeting of the Monetary Policy Committee (MPC), led by the Governor of the Reserve Bank, is scheduled for October 4-6, 2023. The last meeting of the MPC, the highest-rated panel, was in August.
“We do expect the RBI to maintain a status quo position this time as inflation is still high and liquidity is tight. In fact, going by the RBI’s inflation forecasts, it would be above 5 percent in the third quarter too, which will ensure that The status quo certainly applies for the entire calendar year and probably for the fourth quarter as well,” says Madan Sabnavis, chief economist of the Bank of Baroda.
Sabnavis further said that there are uncertainties regarding the Kharif crop, especially in pulses, which could increase prices.
“The consolation is that there are fewer concerns about growth being on track,” he added.
While consumer price index (CPI)-based retail inflation eased slightly to 6.83 percent in August from 7.44 percent in the previous month, it remained above the Reserve Bank’s comfort level of 6 percent.
It may be mentioned that the government has directed the RBI to keep inflation at 4 percent, with a margin of 2 percent on either side.
Aditi Nayar, chief economist of ICRA Limited, said headline CPI inflation is expected to decline from 6.8 percent in August 2023 to 5.3-5.5 percent in September 2023, thanks to halving in average price of tomatoes and a favorable basis. .
“…We expect CPI inflation to ease to 5.6 percent in the third quarter of FY2024 and further to 5.1 percent in the fourth quarter of FY2024, amid upside risks to food inflation due to of the impact of uneven and substandard monsoons and low reservoir levels on Kharif yields and Rabi sowing respectively,” she said.
Nayar said ICRA expects the MPC to leave policy unchanged for October 2023, while continuing to exercise caution amid the bleak outlook for food inflation and high crude oil prices.
The Reserve Bank has forecast CPI inflation of 5.4 percent for the period 2023-2024, with the second quarter at 6.2 percent, the third quarter at 5.7 percent and the fourth quarter at 5.2 percent, with the risks are balanced. CPI inflation for the first quarter of 2024-25 is projected at 5.2 percent.
On his expectations regarding the next bi-monthly monetary policy, Medical Technology Association of India (MTaI) Managing Director Sanjay Bhutani said the RBI has been following market sentiment to maintain the benchmark interest rate at 6.5 percent for quite some time now. .
However, it is time for the central bank to consider a cut in interest rates with the aim of boosting growth, he said.
“…if that is not possible given high retail inflation and the Federal Reserve’s hawkish stance, the medtech sector, which is burdened by the burden of high debt, expects the RBI to continue with the pause and on At the same time, they give a clear indication of an easing of interest rates in the near future,” Bhutani opined.
Sandeep Bagla, CEO, Trust Mutual Fund opined that the interest rate environment has deteriorated significantly since MPC’s last policy review in August. In the US and India, the economy has shown resilient growth and inflation rates have risen above comfort levels.
‘While food prices have softened, crude oil prices have risen, raising inflation expectations, as evidenced by the sharp rise in US Treasury yields. The MPC will consider all these factors and maintain the status quo on the repo rate as headline inflation is expected to increase. in the coming months,” he said.
The Reserve Bank mainly takes into account CPI-based inflation when setting its bi-monthly monetary policy.
Borrowing costs, which started rising in May last year, have stabilised, with the RBI keeping the repo rate unchanged at 6.5 per cent since February, when it was raised from 6.25 per cent. Later, during the next three bimonthly policy reviews in April, June and August, the benchmark rate was maintained.
The MPC consists of three external members and three officials of the RBI. The external members of the panel are Shashanka Bhide, Ashima Goyal and Jayanth R Varma. Besides Governor Das, the other RBI officials in MPC are Rajiv Ranjan (Executive Director) and Michael Debabrata Patra (Deputy Governor).
The Reserve Bank had raised the benchmark interest rate to 6.5 percent on February 8, 2023, and has since maintained interest rates at the same level in view of persistently high retail inflation and certain global factors, including high crude oil prices in international markets. market.
The meeting of the Monetary Policy Committee (MPC), led by the Governor of the Reserve Bank, is scheduled for October 4-6, 2023. The last meeting of the MPC, the highest-rated panel, was in August.
“We do expect the RBI to maintain a status quo position this time as inflation is still high and liquidity is tight. In fact, going by the RBI’s inflation forecasts, it would be above 5 percent in the third quarter too, which will ensure that The status quo certainly applies for the entire calendar year and probably for the fourth quarter as well,” says Madan Sabnavis, chief economist of the Bank of Baroda.
Sabnavis further said that there are uncertainties regarding the Kharif crop, especially in pulses, which could increase prices.
“The consolation is that there are fewer concerns about growth being on track,” he added.
While consumer price index (CPI)-based retail inflation eased slightly to 6.83 percent in August from 7.44 percent in the previous month, it remained above the Reserve Bank’s comfort level of 6 percent.
It may be mentioned that the government has directed the RBI to keep inflation at 4 percent, with a margin of 2 percent on either side.
Aditi Nayar, chief economist of ICRA Limited, said headline CPI inflation is expected to decline from 6.8 percent in August 2023 to 5.3-5.5 percent in September 2023, thanks to halving in average price of tomatoes and a favorable basis. .
“…We expect CPI inflation to ease to 5.6 percent in the third quarter of FY2024 and further to 5.1 percent in the fourth quarter of FY2024, amid upside risks to food inflation due to of the impact of uneven and substandard monsoons and low reservoir levels on Kharif yields and Rabi sowing respectively,” she said.
Nayar said ICRA expects the MPC to leave policy unchanged for October 2023, while continuing to exercise caution amid the bleak outlook for food inflation and high crude oil prices.
The Reserve Bank has forecast CPI inflation of 5.4 percent for the period 2023-2024, with the second quarter at 6.2 percent, the third quarter at 5.7 percent and the fourth quarter at 5.2 percent, with the risks are balanced. CPI inflation for the first quarter of 2024-25 is projected at 5.2 percent.
On his expectations regarding the next bi-monthly monetary policy, Medical Technology Association of India (MTaI) Managing Director Sanjay Bhutani said the RBI has been following market sentiment to maintain the benchmark interest rate at 6.5 percent for quite some time now. .
However, it is time for the central bank to consider a cut in interest rates with the aim of boosting growth, he said.
“…if that is not possible given high retail inflation and the Federal Reserve’s hawkish stance, the medtech sector, which is burdened by the burden of high debt, expects the RBI to continue with the pause and on At the same time, they give a clear indication of an easing of interest rates in the near future,” Bhutani opined.
Sandeep Bagla, CEO, Trust Mutual Fund opined that the interest rate environment has deteriorated significantly since MPC’s last policy review in August. In the US and India, the economy has shown resilient growth and inflation rates have risen above comfort levels.
‘While food prices have softened, crude oil prices have risen, raising inflation expectations, as evidenced by the sharp rise in US Treasury yields. The MPC will consider all these factors and maintain the status quo on the repo rate as headline inflation is expected to increase. in the coming months,” he said.
The Reserve Bank mainly takes into account CPI-based inflation when setting its bi-monthly monetary policy.
Borrowing costs, which started rising in May last year, have stabilised, with the RBI keeping the repo rate unchanged at 6.5 per cent since February, when it was raised from 6.25 per cent. Later, during the next three bimonthly policy reviews in April, June and August, the benchmark rate was maintained.
The MPC consists of three external members and three officials of the RBI. The external members of the panel are Shashanka Bhide, Ashima Goyal and Jayanth R Varma. Besides Governor Das, the other RBI officials in MPC are Rajiv Ranjan (Executive Director) and Michael Debabrata Patra (Deputy Governor).
ADVERTISEMENT