The Reserve Bank of India (RBI) commenced a crucial three-day monetary policy meeting on Wednesday, December 6, with the decision of the Monetary Policy Committee (MPC) set to be unveiled by RBI Governor Shaktikanta Das around 10 am on Friday, December 8.
Following the MPC’s decision announcement at 10 am on December 8, RBI Governor Das will hold a post-policy press conference at noon.
Market experts foresee the RBI’s cautious approach, considering persistently high inflation above the 4 per cent target, volatile crude oil prices, and concerns regarding El Nino’s impact on agricultural output. This stance is expected to retain the central bank’s pause mode.
“There is a strong likelihood that RBI-MPC will keep the benchmark repo rate unaltered at 6.50 per cent in the upcoming meeting and thereby continue with the pause mode for the fifth consecutive policy review. It’s also unlikely that there will be any revision in the monetary policy stance of withdrawal of accommodation,” said Suman Chowdhury, Chief Economist and Head – Research, Acuité Ratings & Research.
Expectations
Analysts believe the RBI will maintain a vigilant approach due to inflation hovering above its 4 percent target. The volatility in crude oil prices and lingering worries regarding El Nino’s impact on agricultural output will likely compel the central bank to adhere to its current pause mode.
“We expect RBI to be cautious on the inflation front till the concerns on El Nino and agricultural output subside. Also, the growth momentum in the economy remains strong and the transmission of increased interest rates is still a work in progress. Therefore, there is a strong rationale on the part of RBI to continue with the pause mode for the next six months,” said Chowdhury.
The RBI is expected to persist in combating inflation until it consistently falls below the 4 percent threshold.
Rahul Bajoria, MD & Head of EM Asia (ex-China) Economics at Barclays estimates that CPI inflation rose above the RBI’s tolerance limit of 6 per cent in November, driven higher by elevated vegetable and pulses prices. However, Bajoria believes that the likely stable core inflation and robust growth momentum suggest no rate moves in either direction at the MPC meeting this week.
“We estimate that CPI inflation rose in November to 6.15 per cent year-on-year (YoY), a sharp reversal from the moderating trajectory over the past couple of months. CPI inflation in October came at 4.9 per cent and in September stood at 5 per cent. We expect the RBI to remain on a cautious hold this week at its MPC meeting. While stable core inflation should be a relief, it will be cautious of the impact of elevated food inflation on inflation expectations,” said Bajoria.
Madhavi Arora, the Lead Economist at Emkay Global Financial Services, highlighted that the forthcoming MPC meeting will occur against a backdrop of a favorable global scenario, constrained system liquidity, and declining core inflation despite robust growth.
Arora suggests that the RBI finds reassurance in the rapid shift in global risk sentiments and minimal volatility, reducing the necessity for open market operation sales and mitigating financial instability risks. Arora envisions a shift in policy focus towards domestic concerns, emphasizing the resurgence of food inflation and the sluggish transmission of policies as pivotal factors.
Key Highlights
Meeting Highlights: RBI started a 3-day meeting on Dec 6; decision by Governor Das on Dec 8, 10 am, followed by a noon press conference.
Expected Approach: Experts anticipate cautious RBI stance due to high inflation, volatile oil prices, and agricultural concerns.
Rate Expectation: Repo rate likely to stay at 6.50%, aligning with economic momentum and ongoing interest rate adjustments.
Inflation Outlook: RBI aims to curb inflation until it consistently falls below 4%.
Policy Shift: Arora hints at RBI focus on domestic challenges like food inflation and policy implementation, nudging banks subtly on savings account rates.