Reserve Bank of India Governor Shaktikanta Das is set to disclose the outcome of the initial Monetary Policy Committee (MPC) gathering of the financial year 2024-2025 on Friday.
The Indian central banking authority has maintained the repo rate unchanged over the past six consecutive MPC sessions, and experts anticipate a continuation of the status quo on interest rates this time as well. The repo rate, which stands as the interest rate at which banks access funds from the RBI to address short-term liquidity gaps, remains pivotal.
Established under the Reserve Bank of India Act, 1934, the Monetary Policy Committee comprises six members, with three members hailing from the RBI, including Governor Shaktikanta Das, and three members appointed by the Central government.
The two-day review session of the MPC, which commenced on April 3, concludes today.
In the last review held in February 2024, the RBI opted to maintain the status quo on policy rates and stances. However, the decision wasn’t unanimous, as one member recommended a 25 basis point rate cut and a shift in policy stance to neutral.
Following the previous policy review, rating agencies have revised India’s growth forecast upwards. Finance Minister Nirmala Sitharaman recently expressed confidence that India’s growth will exceed 8 per cent in FY24.
Inflation has shown a downward trend and has remained within the comfort zone. Consumer Price Index inflation stood at 5.1 per cent in February 2024, down from over 5.5 per cent in December 2023. Core CPI inflation, excluding food and beverages, hit a low of 3.5 per cent in February 2024. While food inflation above 7 per cent has raised concerns, recent reductions in the prices of petrol, diesel, and LPG are expected to further decrease it in March, potentially falling below 5 per cent.
The India Meteorological Department’s recent announcement of above-normal temperatures during April-June may raise concerns about the rise in prices of vegetables, fruits, and other perishable items. Additionally, the increasing prices of rice and pulses may be a point of concern for the MPC during decision-making. However, the softening prices of non-food items may provide some relief to the committee.
Typically, normal monsoons follow above-normal temperatures, implying that the average CPI inflation is likely to remain within the RBI’s comfort zone of 4-6 per cent in FY25.
According to official data, retail inflation in India slightly eased in February to 5.09 per cent from 5.10 per cent the previous month, primarily due to deceleration in prices across all categories except food.
Experts opine that the RBI is improbable to alter its policy stance before the August 2024 MPC review, and any rate cut is unlikely before that. The recent indication by the US Fed that it isn’t rushing to cut rates also suggests that the RBI is unlikely to opt for a rate cut before the October 2024 policy.
The upcoming MPC meetings of the RBI are scheduled for June, August, October, December, and February 2025.