Next week’s monetary policy meeting comes amid a sharp spike in vegetable prices, a spatially uneven monsoon, and a divergent global monetary policy cycle. Even as seasonal inflationary pressures gather momentum, the Reserve Bank of India (RBI) is expected to keep the repo rates unchanged, thereby maintaining a status quo in both policy rates and stance.
The six-member Monetary Policy Committee (MPC), headed by RBI Governor Shaktikanta Das will meet for three days on 8-10 August and announce the policy decision on 10 August at 10 am.
In the June Policy meet, the RBI had kept the repo rate unchanged at 6.5 percent for the second straight meeting. The MPC voted unanimously to keep the repo rate unchanged. It decided to take a pause after consecutive rate hikes in 6 previous policies.
The central bank has already increased the repo rate by a total of 250 basis points since May in a bid to contain inflation. This was the second time after the April policy review that the RBI had maintained the status quo.
However, the Governor highlighted in the June meeting that the MPC will take further decisions promptly and appropriately as required, adding that “we need to maintain Arjuna's eye on evolving inflation scenarios”.
Meanwhile, the MPC voted by a 5:6 majority to remain focussed on the ‘withdrawal of accommodation’ to ensure inflation aligns with the target while focussing on growth.
Expectations from the upcoming policy
Mahesh Agarwal, National - Head Wealth at AUM Capital: We expect the RBI to maintain a cautious and hawkish stance in its upcoming monetary policy meeting. The rise in inflation is also causing a rise in food prices, specifically in the price of vegetables in July. In June, the Consumer Price Index (CPI) showed an inflation rate of 4.81 percent. Similarly, core inflation in June was lower at 5.1 percent than 5.2 percent in May. As a result, CPI is likely to accelerate in the next few months because of the erratic effects of monsoon have affected the farmers. Floods in the northwest and insufficient precipitation in the south and east have slowed harvesting.
The market for cereals is actually on the rise, both domestically and internationally. In particular, the latter category is impacted by geopolitical developments such as the Black Sea grain trade agreement. Furthermore, El Nino-related weather uncertainties exist, elevating the possibility of a delayed start to the policy easing cycle. Subsequently, The surprise surge in retail inflation for June has pushed the rate cut possibilities to the next financial year. Hence, We expect RBI to keep the policy rates and stance unchanged in the forthcoming policy.
Sujan Hajra, Chief Economist and Executive Director, Anand Rathi Shares and Stock Brokers: Further rate hikes in India are unlikely, with current inflation 50 basis points lower than the long-term average and the country's existing policy rate 50 basis points higher than the 10-year average. Retail inflation in India, on the other hand, has been significantly higher than projected in the last month, and major price pressures are noticeable for certain categories, particularly in the food category. At the same time, India's economic statistics remain optimistic. As a result, another 25 basis point rate hike in India is not completely ruled out. We believe that the Monetary Policy Committee will conduct at least another review to evaluate whether the inflationary risk is much higher than previously expected. The repo rate remains unchanged at 6.5 percent since February and is likely to continue the same till the next calendar year.
Aditya Damani, Founder & CEO, Credit Fair: The RBI is expected to carry on with the current stance of 'withdrawal of accommodation, as CPI inflation has gone up to the higher than expected level. The repo rate is likely to remain unchanged. With the US Fed rate hike, the possibility of a rate cut remains distant. Having said that, MPC will definitely keep an eye on boosting consumer sentiment and capex momentum.
Umesh Mohanan, Executive Director & CEO, Indel Money: The RBI takes into account CPI data to assess the domestic inflation dynamics and CPI inflation is on the higher side and is showing a tendency to move out of the comfort zone of the RBI. Therefore, the central bank is likely to continue with the repo rate unchanged and continue with its current stance of 'withdrawal of accommodation.’ Overall, MPC is expected to adopt a hawkish stance.