The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) has initiated its discussions, with experts predicting that the central bank will keep the benchmark interest rates unchanged at 6.5 percent. The six-member committee, headed by RBI Governor Shaktikanta Das, will meet for three days, and the outcome of their deliberations will be announced on June 8.
The recent decline in retail inflation and the need to stimulate economic growth are key factors influencing expectations of a status quo on interest rates.
Following the previous MPC meeting in April, the RBI put a pause on its rate hike cycle and maintained the repo rate at 6.5 percent. Prior to that, the central bank had raised the repo rate cumulatively by 250 basis points since May 2022 to combat inflationary pressures.
The MPC’s meeting occurs against the backdrop of consumer price-based (CPI) inflation dropping to an 18-month low of 4.7 percent in April. Governor Das recently indicated that the May CPI figures would be even lower than those of April. The CPI for May is scheduled to be announced on June 12.
Rumki Majumdar, Economist at Deloitte India, anticipates a pause in this MPC meeting due to concerns over economic growth. The global economy’s slowdown raises the risk of the contagion effect impacting India, and Majumdar notes that central banks worldwide may also opt for a pause or fewer rate hikes due to easing inflation. This environment would further support the RBI’s decision to maintain the status quo.
Dhruv Agarwala, Group CEO of Housing.com, expects the RBI to keep the benchmark lending rate unchanged given the easing concerns surrounding inflation.
While some advocate for a rate cut to stimulate growth, Agarwala suggests that the RBI will exercise caution and wait before considering such a step. He highlights the robust GDP growth rate of 7.2 percent achieved by the Indian economy in the financial year 2022-23 as evidence of its resilience in the face of global challenges.
Pradeep Aggarwal, Founder and Chairman of Signature Global (India), also believes that the central bank is likely to maintain the status quo on the policy rate. However, he suggests that the RBI should consider announcing a small rate cut if the opportunity arises. Such a move could positively impact consumer sentiment and benefit the interest-sensitive real estate sector.
The actual decisions made by the RBI will depend on various factors, including economic data, inflation trends, global economic conditions, and prevailing challenges, according to experts.
