The six-member Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI), which met between Aug. 8 and 10, is largely anticipated to maintain the policy repo rate at 6.5% for a third straight time, according to a press release. Concerns over growing consumer price index (CPI) inflation, driven by higher prices for vegetables and pulses, may not dissuade the central bank from retaining its monetary stance of "withdrawal of accommodation" in the face of surplus liquidity in the banking sector. This is because higher prices for vegetables and pulses are driving up these costs.
The MPC reached a unanimous decision in April to put a hold on further increases to the repo rate. The repo rate is the rate at which the RBI loans money to banks to satisfy their need for short-term funding. The repo rate was increased by 250 basis points (bps) between May 2022 and the current day, which resulted in this hold being placed on the rate. One-tenth of a percentage point is equal to one basis point, hence the two terms are interchangeable. The Federal Reserve maintained the repo rate at its previous level of 6.5% when it made its statement in June.
Following the announcement of the policy for April, RBI Gov. Shaktikanta Das said "it was a pause and not a pivot," and he reiterated this statement following the announcement of the policy for June. The hawkish repo rate is expected to be preserved by the six members of the MPC, according to the projections of financial experts. Recently, Dinesh Khara, chairman of the State Bank of India, said the Reserve Bank of India will keep its existing stance on policy interest rates. The present increase in the price of international crude oil, which has been caused by OPEC supply cuts and has been 11% higher since June, could lead to rising inflation with the whims of the monsoon and agricultural concerns, according to a prediction made by Care Ratings.
While other major central banks, like the Federal Reserve in the United States and the European Central Bank (ECB), chose to raise interest rates by 25 basis points, the RBI decided to extend the pause in policy that was implemented in August. According to Kaushik Das, the chief economist for India and South Asia for Deutsche Bank, system liquidity is still in surplus mode, and the near-term inflation outlook is rather uncertain, both of which suggest that the MPC will maintain its "removal of accommodation" posture for the time being. Das said that these two factors suggest that the MPC would preserve its position for the time being.
