Reserve Bank Of India Panel Begins Rate Review Amid Inflation Concerns

The Reserve Bank's rate-setting panel began its three-day deliberations on the next bi-monthly monetary policy on Tuesday, amid expectations of maintaining the current benchmark interest rate. Concerns over inflation and steady economic growth are likely to influence the decision, which will be announced by RBI Governor Shaktikanta Das on Thursday.

Experts predict that the Monetary Policy Committee may refrain from cutting rates as economic growth remains robust, despite the high repo rate of 6.5%. Retail inflation, driven by rising food prices, hit a four-month high of 5.08% in June. The government is expected to release July’s inflation data later this month.

According to a SBI research report, the RBI is anticipated to hold rates steady due to food price trends aligning with the RBI's 4.5% inflation projection. The report also notes that potential excess rainfall could affect food prices negatively. The Reserve Bank is likely to continue its stance of withdrawing accommodation.

Goldman Sachs reports that the MPC is expected to keep the policy rate unchanged at 6.5% during its Aug. 8 meeting, with a 4:2 vote in favour. The bank also predicts that the RBI will maintain its monetary policy stance of 'withdrawal of accommodation' and remain committed to the 4% inflation target.

Since the last rate hike to 6.5% in February 2023, the RBI has maintained this rate in its subsequent bi-monthly policy reviews.

Radhika Rao, Executive Director and Senior Economist at DBS Bank, suggests that the RBI MPC is likely to retain its cautious approach and 'withdrawal of accommodation' stance, given the strong domestic growth-inflation mix. Rao also noted that developments in US Federal Reserve policy and cooling economic activity could impact RBI decisions.

Shreya Sodhani, Regional Economist at Barclays, expects the MPC to keep rates on hold in its upcoming meeting, considering factors such as monsoon progress, international commodity prices, and domestic input price trends. She maintains a forecast for an RBI rate cut in December, though acknowledges risks if inflation does not align with expectations.

Sanjoo Bhadana, Founder and MD of 4S Developers, anticipates the MPC will keep the repo rate unchanged at 6.5%, citing concerns over food inflation. Bhadana hopes for a policy shift to stimulate housing demand.

HS Bhatia, Managing Director at Daweebo India, suggests that while lower interest rates could boost consumer spending and demand for durables, the RBI's focus on inflation might limit room for easing. A supportive policy stance could benefit the consumer durable market, Bhatia said.

According to Suman Bannerjee, CIO at Hedonova, the RBI could maintain the current benchmark rate to balance growth and price stability amid persistent inflationary pressures.

Amit Goel, Co-founder and Chief Global Strategist at Pace 360, believes the RBI might pivot to a neutral stance, signaling a shift towards easing due to high real rates, low core inflation, and surplus liquidity.

Manoj Dharmani, CEO of DUDigital, advocates for maintaining the current repo rate to support balanced growth and inflation control. A stable rate is seen as conducive to investment and consumer spending.

Pyush Lohia, Director at Lohia Worldspace, supports a hold or slight reduction in the repo rate to sustain housing market momentum, though he acknowledges the RBI's focus on inflation could limit potential rate cuts.

Governor Shaktikanta Das had previously indicated that a change in interest rate stance would be premature, given the gap between current inflation and the 4% target.

(With inputs from PTI)