Anushruti Singh
The RBI is expected to continue the pause, with no change in the repo rate in the forthcoming policy review Meeting on 8th June. The growth rate of the Indian economy is encouraging, well above the global rates ,and inflation is also indicating a moderating trend, feels experts.
The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) may not remove its finger from the repo rate pause button it had hit in April 2023, said experts there by ruling out the possibility of a rate reduction.
“It is unlikely that the RBI will precede the Fed (US Federal Reserve) in reversing its course of rate hikes. However, MPC may soften its tone, on net amid (1) improving domestic inflation outlook (and a possible downward revision in its forecast), (2) improving external sector dynamics and (3) ongoing monetary-policy lags of past hikes,” Madhavi Arora, Lead Economist, Emkay Global Financial Services said.
Jyoti Prakash Gadia, Managing Director, Resurgent India commenting on RBI’s proceeding says that the pressure on food prices and adverse impact on the economy due to uncertainties about monsoon as well as prolonged geopolitical tensions is expected to prompt RBI to adopt a wait and watch approach thereby maintaining the repo rate at the existing level.
“The full impact of 250 basis points increase in repo rate undertaken by RBI, since May 2022 is still panning out in relation to the growth versus inflation matrix ,and any charge in the policy rate may require some further examination of the emerging economic parameters, before taking a final view on either increasing or decreasing the repo rate,” he added.
According to him, a status quo is therefore expected to be maintained in the next policy review meeting of RBI. “Any change in repo rate may be brought in the later quarters of the financial year. In the meantime the projected GDP growth rate and expected inflation rate may be revised by RBI based on the current scenario,” he said.
The consumer price index (CPI) inflation moderated in April’23 to 4.70 per cent year-on-year (YoY) and remained within the RBI’s target range (2-6 per cent) for the second consecutive month.
Experts also expressed concern at the likely impact of El Nino on the economy and urged the government to forecast the same.
“Accurately forecasting the potential impact of El Nino on the economy has become the primary concern. Considering our economy’s heavy dependence on farmers and small businesses, we feel that the Government would do well to take steps to mitigate the adverse effects of El Nino,” said Parag Sharma, Whole-time Director & Chief Financial Officer, Shriram Finance.
“With the customer inflation level at 4.7 per cent, well below RBI’s upper tolerance limit of 6 per cent, the conditions seem favourable for a pause in rate hikes. The latest GDP forecasts also point towards inflation becoming less of a concern. Accordingly, we expect that the MPC, in its upcoming meeting, will hit the pause button on the policy rate hikes, for the second time running. However, accurately forecasting the potential impact of El Nino on the economy has become the primary concern. Considering our economy’s heavy dependence on farmers and small businesses, we feel that the Government would do well to take steps to mitigate the adverse effects of El Nino.”
