RBI MPC meeting on June 6-8: SBI predicts a pause in rate, growth upgrade

The Reserve Bank of India’s (RBI’s) Monetary Policy Committee, in the last MPC meeting, had decided to keep the repo rate unchanged at 6.50 per cent, after increasing the rates by 250 bps since May last year. In the upcoming meeting too, scheduled for June 6-8, the State Bank of India believes that the repo rate would remain unchanged once more. It also said that inflation estimates for FY24 could be downgraded. 

In its prelude to the MPC meeting, SBI has stated that it expects “RBI to pause in June policy”. It said that it believes that “at 6.50 per cent, we are in for a prolonged pause…”

The report quoted the RBI that said that the pause in rates was a “temporary arrangement”. “With sizeable banking failures across AEs, and a fair probability of contagion spreading across markets despite concerted action from policy makers/regulators to check the same, RBI’s endeavor to sidestep from synchronous rate hike was a courageous gambit, especially since climate risk could upend inflationary projections,” said the SBI report. 

“The stance could continue to be withdrawal of accommodation, as liquidity has turned into significant surplus mode,” it further added. Liquidity surplus has increased with the Net LAF absorption at Rs 2.4 lakh crore as on June 1, as compared to a surplus of Rs 2.1 lakh crore at the beginning of the fiscal year. The report added that liquidity is likely to increase further in the coming months owing to the deposit of Rs 2,000 notes. 

The report stated that inflation data till October would be decisively below 5 per cent. The prelude added that inflation estimates for FY24 could be downgraded in the June policy. Growth remains strong, it said, further adding that possibility of growth upgrade for FY24 looks imminent. 

“The RBI could make a tactical shift in forward market intervention to sell buy swaps… neutralise liquidity and allow Rupee to find its own level…~ $12 bn forward maturity in 3-12 months bucket,” it said. 

It also stated that the US Federal Reserve could hike rates in June, and then pause. 

Moreover, it declined to issue a forward guidance. “In an environment of rising rates, it is clearly not advisable to give a forward guidance,” the prelude stated. 

Also read: RBI MPC Meet 2023: MPC unanimously votes to keep repo rate unchanged at 6.5%