Reserve Bank of India Monetary Policy Committee February 2024: The Reserve Bank is likely to continue suspending short-term lending rates in its upcoming bimonthly monetary policy this week as retail inflation persists following an interim budget that maintains the status quo on policy. Experts say it’s close to the high end of the comfort zone.
It has been almost a year since the Reserve Bank stabilized the short-term lending rate, or repo rate, at 6.5%. The benchmark interest rate was last raised in February 2023 from 6.25% to 6.5% to curb inflation driven mainly by global developments.
Retail inflation in the current financial year has declined after peaking at 7.44% in July 2023, but remains high at 5.69% in December 2023, albeit within the Reserve Bank’s comfort zone of 4-6%.
The Monetary Policy Committee (MPC) headed by the RBI Governor will begin its three-day deliberations on February 6. Governor Shaktikanta Das will announce the decision of the six-member panel on February 8.
Madan Sabnavis, chief economist at Bank of Baroda, said the Monetary Policy Committee is likely to remain unchanged on interest rates and stance.
“This is because inflation remains high based on December data and there is pressure on food. Although core inflation has fallen,” he said.
According to the Reserve Bank of India’s inflation forecast, inflation will remain above 5% until the end of June and then decline.
“Also, with strong economic growth, there is less pressure to consider a rate cut at this time. In fact, the Reserve Bank of India has said that the transmission of a 250 basis point rate cut has not yet been completed, so there is reason to pause,” Sabnavis said.
It will be interesting to see if there are any revisions to FY24 GDP and inflation forecasts.
“Also, it will be useful to know the GDP growth in FY25, given that the budget has been outlined,” the public sector bank’s chief economist said.
The government has tasked the central bank to ensure that retail inflation based on the Consumer Price Index (CPI) remains at 4%, with a margin of 2% on either side.
On the Reserve Bank of India’s expectations on monetary policy, Aditi Nayar, chief economist, research and outreach department, ICRA, said CPI-based inflation is expected to moderate in FY25, although an evenly distributed monsoon will be crucial.
“We do not expect any changes to rates or stance in the upcoming review. Our baseline expectation is that a rate cut could come as early as August 2024, following a change in stance from the previous review.”
The Goldman Sachs report predicts that the Reserve Bank of India will keep the policy repo rate unchanged until the third quarter of 2024 (Q3 CY24).
“With headline inflation remaining above the RBI’s target in Q1 2024, we maintain our view that the RBI will continue its hawkish approach by keeping the policy repo rate unchanged at 6.5% at the policy meeting on February 8 guidance and reiterated the 4% inflation target. We further expect the RBI to maintain a tight liquidity stance.”
Meanwhile, Finance Minister Nirmala Sitharaman is scheduled to address the Reserve Bank of India’s central committee on February 12 and highlight key points of the interim union budget she presented in Parliament on February 1.
As per tradition, the finance minister addresses the RBI board after the Budget.
Housing.com Group CEO Dhruv Agarwala also expects the central bank to keep the repo rate at the current level at the upcoming monetary policy meeting.
“This decision reflects the cautious approach taken by the central bank in maintaining a delicate balance between promoting economic growth and controlling inflation. As inflation risks continue to exceed the 6% ceiling, the possibility of a rate cut should inflation show signs of further slowing That may not happen until the second half of this fiscal year. Maintaining the status quo on policy rates means a commitment to interest rate stability,” he believes.
The Monetary Policy Committee is responsible for deciding the policy repo rate to achieve the inflation target, taking into account the growth target.
At its off-cycle meeting in May 2022, the Monetary Policy Committee raised the policy rate by 40 basis points, followed by hikes of varying magnitudes in each of the five meetings until February 2023. The repo rate was increased by 250 basis points cumulatively between May 2022 and February 2023.
The Monetary Policy Committee consists of three external members and three RBI officials.
External members of the team include Shashanka Bhide, Ashima Goyal and Jayanth R Varma. Apart from Governor Das, other RBI officials on the Monetary Policy Committee include Rajiv Ranjan (Executive Director) and Michael Debbrata Patra (Deputy Governor).
(This story has not been edited by News18 staff and is published from associated news agency – PTI)
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