New Delhi: SBI Research expects the Reserve Bank of India to again put a pause on the key policy rates as the central bank’s third monetary policy committee meeting is currently underway. The outcome of the review meeting will be announced on Thursday morning.
RBI typically conducts six bi-monthly meetings in a financial year, where it decides interest rates, money supply, inflation outlook, and various macroeconomic indicators. The ongoing three-day meeting started on Tuesday.
In its previous meeting in early June, the central bank’s monetary policy committee unanimously decided to keep the repo rate unchanged at 6.5 per cent, something most analysts had expected. The RBI in its April meeting too had paused the repo rate.
The repo rate is the rate of interest at which RBI lends to other banks.
“We expect the RBI to pause in August policy,” the SBI Research report, authored by SBI’s Group Chief Economic Adviser Soumya Kanti Ghosh, said.
“Domestically, we believe at 6.50 per cent, we are in for a prolonged pause as seasonality of inflation should taper…,” the report said.
It did not give any forward guidance, saying, “In an environment of rising rates, it is clearly not advisable to give a forward guidance.”
Meanwhile, a consistent decline in inflation (currently at an 18-month low) and its potential for further decline may have prompted the central bank to put the brake on the key interest rate again. Inflation has been a concern for many countries, including advanced economies, but India has managed to steer its inflation trajectory quite well.
Barring the April pause, the RBI raised the repo rate by 250 basis points cumulatively to 6.5 per cent since May 2022 in the fight against inflation. Raising interest rates is a monetary policy instrument that typically helps suppress demand in the economy, thereby helping the inflation rate decline.
India's retail inflation was above RBI's 6 per cent target for three consecutive quarters and had managed to fall back to the RBI's comfort zone only in November 2022. Under the flexible inflation targeting framework, the RBI is deemed to have failed in managing price rises if the CPI-based inflation is outside the 2-6 per cent range for three quarters in a row.
Now what remains to be seen is whether the RBI committee will for the third straight time keep the repo rate unchanged or otherwise, given there was an uptick in inflation in June. (ANI)
