MPC unlikely to begin rate cuts now
MUMBAI: Despite the rising chorus within the monetary policy committee (MPC) for slashing the interest rates and also change the policy stance, nobody is expecting the Reserve Bank-led rate setting panel to tweak the policy rates or even the stance because of the still stubborn inflation.
If the MPC, which began its three-day customary pre-policy review meeting on Tuesday here, leaves the rates unchanged, this will be the ninth consecutive time it does so, after it raised the key repo rate by 35 bps to 6.5% in the February 2023 review.
Two of the six-member MPC in the last policy meet in June had differed with the majority view to hold the rates as well as to retain the policy stance of withdrawal of accommodation. Jayant Verma and Ashima Goel are two of the three external members of the panel and are appointed by the government.
State Bank chairman Disneh Khara was vocal in saying he doesn’t expect any changes in the policy on Thursday, saying growth remains strong and inflation, led by food articles are stubbornly high.
“There is no reason for the RBI to slash the rate now as its inflation is far from over. Moreover, the economy is faring robustly well. Most central banks are decoupling from themevles and act mostly according to the domestic situations,” Khara told reporters at the post-earnings presser last Saturday.
However, he expects the RBI to do something more on the liquidity front as the system gets into the busy credit season now. Even fund managers and chief financial officers’ polls by business channels also don’t expect any changes in the policy rates.
Retail inflation rose to 5.08% in June as against 4.8% in May, and remaining under the 5% mark since January due to higher food and beverage inflation. Core CPI rose to 3.13% from 3.07% in May. Both rural and urban inflation rates jmped in June, with rural inflation increasing to 5.66% and urban printing in at 4.39% in June.
In a pre-policy note, Soumyakanti Ghosh of SBI Research, said he expects CPI inflation to remain below or close to 5% in the remaining months, except for September and October. For the whole of FY25, CPI inflation is likely to average to 4.6-4.7%.
Status quo likely for ninth consecutive time
If the MPC, which began its three-day customary pre-policy review meeting on Tuesday, leaves the rates unchanged, this will be the ninth consecutive time it does so, after it raised the key repo rate by 35 bps to 6.5% in February 2023 review. Two of six-member MPC in last policy meet in June had differed with the majority view to hold the rates as well as to retain the policy stance of withdrawal of accommodation.
