The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) will hold its first meeting for the financial year (FY) 2024-25 from April 3 to 5. It is generally expected that the panel will leave the repo rate, the key interest rate, unchanged and maintain the policy of “withdrawal of accommodation”. Analysts said the central bank will be cautious, as persistent risks of food inflation could affect the consumer price index (CPI) or retail inflation.
The MPC will probably leave the repo rate – the interest rate at which RBI banks lend money to cover their short-term financing needs – unchanged at 6.5%. After an increase of 25 basis points (Bp) in February 2023, the interest rate has remained unchanged at this level for seven consecutive MPC sessions. A base point is one-hundredth of a percentage point.
The MPC meeting took place after the US Federal Reserve decided to leave its key interest rate in a range between 5.25% and 5.2%, and the Bank of Japan (BoJ) increased its key interest rate for the first time since 2007, thus ending an eight-year negative interest rate regime. The BoJ has raised the key interest rate from -0.1% to a range of zero to 0.1%. The government has instructed the RBI to keep inflation at 4%, with a comfort band of 2% in both directions. In February, retail inflation remained largely unchanged at 5.09% compared to 5.1% in January.
Analysts said that the RBI will probably not lower the repo rate if the inflation target of 4% is not permanently reached. Madan Sabnavis, the Chief Economist of the Bank of Baroda, shared, “Inflation is still in the range of 5% and there is the possibility of a future shock on the food inflation front. Given this, the MPC can also maintain the status quo in terms of key interest rates and attitude this time. He said that there may be a revision of GDP estimates. Everyone will follow this with excitement.”
Aditi Nair, the chief economist of Investment Information and Credit Rating Agency (ICRA), said that with the increase in GDP growth estimates by the NS for the first and second quarters of 2023–24, the growth rate is expected to be above 8% for three quarters in a row and that the Consumer Price Index (CPI) will remain at 5.1% in February so that there is no possibility of a change in the key interest rate and attitude in the upcoming review of monetary policy.
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