RBI's MPC to Hold Rates But Could Shift to Neutral Stance
By : Falaknaaz Syed
Update: 2024-10-08 18:14 GMT
MUMBAI: The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) is set to remain on hold for the tenth consecutive time, keeping the benchmark repo rate at 6.50 per cent. The three-day deliberations that began on Monday would conclude on Wednesday. While the central bank may signal a shift to a neutral monetary policy stance, indicating a potential openness to future rate cuts, the decision will ultimately hinge on domestic inflation trends and global risks.
Governor Shaktikanta Das in his recent speeches has been categorically pushing back on any near-term turn, disassociating RBI’s monetary policy from the US rate cuts, and talking up future growth prospects.
"This was further corroborated in the recent RBI Bulletin, where RBI staff estimates show no growth slippage, and inflation being broadly on track to meet RBI’s growth and inflation projections of 7.2 per cent and 4.5 per cent for FY25, respectively," said Rahul Bajoria, India and ASEAN Economist at Bank Of America in his report titled “RBI October MPC Preview: A lonely hawk”
The upcoming meeting will have three new MPC members joining the MPC who do not seem to have a strong bias and may agree with RBI’s house
view for some time.
The upcoming meeting will have three new MPC members joining the MPC who do not seem to have a strong bias and may agree with RBI’s house
view for some time.
While India remains one of the fastest growing economies, it has slowed down to 6.7 per cent in the April-to-June quarter from 8.2 per cent a year earlier, undershooting the RBI's own forecast.
Indranil Pan, Chief Economist, YES BANK said, “Data in the form of a PMI dip, fall in two-wheeler and private vehicles growth, dip in personal loans etc. point to a slowdown story for India. This has led to some noises, backed by the start of a Fed rate cycle, for at least a change in the stance by the RBI, if not a rate cut. We think that while growth is slowing, it is not crashing.”
“But the RBI will have to be guarded of global risks to inflation emanating from a sudden jump in the commodity prices, a China recovery etc. With growth not showing signs of crashing but with some lingering risks on the prices side, we see the best bet for RBI to continue to stay on the sidelines. Even as uncertainty exists on the timing of the start of the rate cut, for sure this cycle will be shallow to the extent of only a 50-75 bps easing.”
The RBI has hiked policy rates by 250 basis points between May 2022 and February 2023, since then it has kept the repo rate unchanged at 6.5 per cent to align inflation to the 4 per cent target. he repo rate is the rate at which the RBI lends money to banks to meet their short-term funding needs. A status quo in repo rate means that all external benchmark lending rates (EBLR) that are linked to the repo rate will remain unchanged providing relief to borrowers.
“But the RBI will have to be guarded of global risks to inflation emanating from a sudden jump in the commodity prices, a China recovery etc. With growth not showing signs of crashing but with some lingering risks on the prices side, we see the best bet for RBI to continue to stay on the sidelines. Even as uncertainty exists on the timing of the start of the rate cut, for sure this cycle will be shallow to the extent of only a 50-75 bps easing.”
The RBI has hiked policy rates by 250 basis points between May 2022 and February 2023, since then it has kept the repo rate unchanged at 6.5 per cent to align inflation to the 4 per cent target. he repo rate is the rate at which the RBI lends money to banks to meet their short-term funding needs. A status quo in repo rate means that all external benchmark lending rates (EBLR) that are linked to the repo rate will remain unchanged providing relief to borrowers.