The Reserve Bank’s Monetary Policy Committee (MPC) will be announcing its decision on the key interest rate or repo rate, which directly impacts borrowing costs for banks and indirectly influences loan interest rates for businesses and individuals. At present, the repo rate is 6.50 per cent, which has been constant since April 2023.
Most experts have predicted that the RBI is expected to keep its repo rate unchanged at 6.50 per cent after its deliberations, continuing its stance of ‘withdrawal of accommodation’. In the last policy announcement on February 8, the MPC left the key repo rate unchanged at 6.5% for the sixth consecutive time. The central bank last hiked the repo rate to 6.5 per cent in February 2023 and since then it has held the rate at the same level.
Governor Shaktikanta Das said: “Our policy stance is in terms of interest rate, which is the principal tool of monetary policy in the current framework.”
He explained that the stance of ‘withdrawal of accommodation’ should be seen in the context of incomplete transmission of interest rates, and inflation staying above the target of 4 per cent.
What is expected in April MPC meeting?
1. Experts said the MPC may take cues from the central banks of some major economies, such as the US and the UK, which are apparently in wait-and-watch mode on interest rate cuts.
“We believe the (monetary policy) stance should continue to be withdrawal of accommodation,” said research report of the country’s largest lender State Bank of India (SBI).
It further said there is strong evidence of central banks in emerging economies rate actions are predicated by such actions by central banks in advanced economies.
2. Economic Growth
Most experts, banks and brokerages have predicted Indian economy growing at an impressive rate and growth forecasts also suggest a robust performance ahead. India’s economy grew a stellar 8.4% in the fourth quarter of 2023, the fastest among major economies. Recently, the World Bank said in its latest report that Indian economy is projected to grow at 7.5 per cent in 2024 revising its earlier projections for the same period by 1.2 per cent. It also said that growth in South Asia is expected to be at 6 per cent in 2024 driven mainly by India’s economy.
This optimistic outlook could prompt the RBI to adopt a cautious stance on rate adjustments to avoid overheating the economy.
Sonal Varma, Managing Director & Chief Economist- India and Asia Ex-Japan at Nomura, said there could be a potential upgrade from the RBI’s projection of 7% to around 7.2%, aligning with recent models forecasting an even higher 7.4% growth.
3. Inflation control
Inflation control is a perennial goal for the RBI, and current projections indicate a manageable scenario. In February, inflation was at 5.09% and is expected to decline to 4.00% in the third quarter before rising, a Reuters poll showed. Price rises are expected to average 4.60% in the current fiscal year.
Soumya Kanti Ghosh, Group Chief Economic Advisor, State Bank of India, said he foresees inflation remaining anchored within the 4-5% range for the next fiscal year, aided by potential continued deflation in core elements.
4. Normal monsoon season
The RBI’s policy framework is significantly influenced by the agricultural sector’s outlook, heavily reliant on monsoon patterns. Skymet’s prediction of a normal monsoon season indicates stable agricultural production, potentially curbing food inflation and bolstering rural income.
5. Crude oil
Crude oil prices are influenced by geopolitical tensions due to the Israel-Hamas conflict. Expecting crude oil prices to stay high, the RBI may consider the effects of increased energy expenses on inflation and the current account deficit.
