The RBI-led Monetary Policy Committee (MPC) meeting is being held in a tough global economic environment. The US treasury yields have shot up to a 16-year high even as the US Fed has signalled that it won't be backing down against its inflation fight. The higher-for-longer message is loud and clear.
The Reserve Bank of India's (RBI) MPC is widely expected to stick to the status quo playbook for now maintaining the repo rate at 6.5 per cent. It will be in a wait-and-watch mode and will gauge the impact of the cumulative hike of 250 basis points effected since May 2022 before it takes any meaningful decision.
The latest World Bank forecast for India's economic growth at 6.3 per cent should come as a breather even if it's a tad bit lower than the RBI estimate of 6.5 per cent. India will be the fastest-growing economy in a tough period for the global economy but it won't remain completely insulated. A slowing down of exports and moderation in consumption due to high prices could chip away at some of the growth potential, raising concerns for the rate-setting panel.
As far as inflation is concerned, the second quarter numbers are expected to surpass RBI's projections even as the data is awaited for the month of September. However, the silver lining is that the latest bout of inflation was driven mostly by an increase in prices of food items which are expected to head south once the impact of government measures kicks in and as fresh stock enters markets.
MPC member Jayanth Varma had also told the Reuters Global Markets Forum (GMF) in an interview that there was much greater urgency to bring inflation to within the Reserve Bank of India's (RBI) comfort band than it was to bring it to the mandated medium-term target of the centre of the band.
The RBI Governor, Shaktikanta Das, had stated that the central bank expects inflation to moderate from September onwards. The inflation print for August moderated to 6.83 per cent after hitting a 15-month high of 7.44 per cent in July, breaching the upper limit of the RBI's tolerance band of 2-6 per cent.
"We expect overall inflation to start moderating from September onwards. August inflation will be again very high, but we expect from September onwards inflation to go down," he had said. Das had said that prices of tomatoes have already fallen and retail prices of other vegetables are also expected to come down from this month.
In a Reuters survey of 71 economists, except one, almost all the respondents said the RBI would keep its key repo rate unchanged at 6.5 per cent at the conclusion of the October 4-6 meeting. One expected a 25 basis points (bps) hike.
"We expect the RBI to look through the second quarter lift in inflation due to sharp spike in vegetable prices and maintain status quo on rates and stance in the October policy. Food inflation will remain a key monitorable and so will oil prices because, if the rise sustains, it can spill over to other components and steer the headline CPI inflation above the RBI’s target. And this can constrain the monetary policy as central banks do respond to inflation when it starts becoming generalised," sa ..
"For now,we do not expect further tightening in monetary policy. The impact of past 250 basis points rate hikes by the RBI is yet to fully play out. We expect it to lead to some moderation in domestic demand in the second half of this fiscal," she further said. Similarly, Anand Rathi's Chief Economict Sujan Hajra also said that another rate hike seems "quite improbable."
An ET poll of 12 market respondents showed that at the end of its October 4-6 meeting, the Monetary Policy Committee (MPC) is likely to keep the repo rate unchanged at 6.5 per cent while retaining its stance of withdrawal of accommodation. Such an outcome would mark the fourth successive policy review in which the MPC has maintained a status quo on rates and stance.
Talking about the stance , Resurgent India's Jyoti Prakash Gadai said, "The RBI is expected to continue with the existing stance of withdrawal of accommodation and not shift to a neutral stance as yet." He said that the current growth inflation trade-off is emerging in a pattern that requires further inputs before making any change in the stance. "Simultaneously the continued good monthly GST collections are indicative of a perceptible revival which needs to be suitably supported on a sustainabl ..
The MPC commentary will hold the key and experts will dig deeper to glean what it holds for the future. Rising oil prices will have the most direct impact on India and a strong dollar index will keep the rupee on the edge.
The RBI is cognizant of the perils of lowering the guard and cutting rates at this juncture is extremely unlikely. The RBI Governor had said that the pause in rate hikes is not for eternity and the MPC will act as the situation necessitates. The rate-setting panel has a lot on its platter and the question everyone will be asking is how long will the pause remain a pause.
Source Name : Economic Times