RBI Likely To Maintain Interest Rates At 6.50% For Third Consecutive Time: Experts

The Reserve Bank of India (RBI) is widely expected to hold the policy repo rate at 6.50 per cent for the third consecutive time on Thursday. Analysts expect the RBI to maintain a hawkish tone as it waits its past rate actions to play out amid inflation inching upwards, with growth not of major concern. The six-member monetary policy committee (MPC) of the RBI will begin its three-day meeting from 8 August. Economists said the panel is unlikely to tinker with the repo rate even though headline consumer price index (CPI) inflation rose to a three-month high of 4.81 per cent in June. Inflation still remains below the central bank’s upper limit of 6 per cent. While the rise in June inflation was mainly on account of hardening vegetable prices, analysts do not expect any relief in July, with the forecast for the headline number shooting above 6 per cent. 

Rahul Bhuskute, Chief Investment Officer at Bharti AXA Life Insurance, said, "We expect the RBI to maintain a hawkish pause in the 10 August policy keeping repo rate and stance (withdrawal of accommodation) unchanged, with system liquidity continuing to be in a surplus mode. Better than expected global growth dynamics are also delaying the headwinds to external demand. While, growth risks could emerge in 2HFY24, it is too early to warrant any dovishness in the monetary policy to propel growth. The recession narrative has become a bit of a wolf story and there is a clear fatigue around this now. It's quite likely that the RBI would re-emphasise the sanctity of the 4 per cent CPI target and repeat that staying within the range is not good enough. The moot point about the policy would be the tenor of the statement which can give us some guidance about the future policy rate path. In our view, RBI to maintain FY24 growth forecast at 6.5 per cent yoy, while revising CPI inflation forecast to 5.3 per cent to 5.4 per cent, from 5.1 per cent currently."

The RBI should maintain a cautious and hawkish stance in its upcoming monetary policy meeting thinks Mahesh Agarwal, National Head Wealth, AUM Capital. He shared, "The rise in inflation is also causing a rise in food prices, specifically in the price of vegetables in July.  In June, the CPI showed an inflation rate of 4.81 per cent. Similarly, core inflation in June was lower at 5.1 per cent than 5.2 per cent in May. As a result CPI is likely to accelerate in the next few months because of the erratic effects in monsoon has affected the farmers."

Floods in the northwest and insufficient precipitation in the south and east have slowed harvesting said Mahesh, adding, "The market for cereals is actually on the rise, both domestically and internationally. In particular, the latter category is impacted by geopolitical developments such as the Black Sea grain trade agreement. Furthermore, El Nino-related weather uncertainties exist, elevating the possibility of a delayed start to the policy easing cycle. Subsequently, the surprise surge in retail inflation for June has pushed the rate cut possibilities to the next financial year. Hence, we expect RBI to keep the policy rates and stance unchanged in the forthcoming policy."