Worried about interest rate hike? Here's why the RBI MPC may leave the repo rate unchanged this time 

The Reserve Bank of India's monetary policy committee meets this week amid continued tensions in West Asia and worries over a weak monsoon, which could affect food prices in the months ahead.
 
The rupee had also been under pressure against the US dollar earlier this year. But the strong uptick in FCNR (B) (foreign currency non-resident) deposit flows, which will help strengthen foreign exchange reserves should give the central bank some comfort.
 
In this backdrop, the MPC may remain cautiously watchful and may maintain a status quo, while pushing any possibility of a rate hike to the future.
 
In the June MPC meet, the repo rate was left unchanged at 5.25 per cent, while the central bank announced several measures to boost foreign institutional investor flows in the country.
 
"Present growth-inflation dynamics point towards risks to growth with a manageable inflation trajectory in the immediate future. This coupled with elevated global uncertainties, may result in MPC not considering the rate hike option in a hurry," reckoned Mandar Pitale, head, financial markets, SBM Bank (India) Ltd.

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MPC is expected to deliver cautionary guidance with global oil prices and monsoon remaining key monitorables for future policy actions, according to him.
 
Santanu Sengupta, chief India economist at Goldman Sachs also expects the MP to leave the repo rate unchanged and also retain the neutral stance.
 
"We expect the MPC to retain a cautious tone on the outlook, particularly around El Niño-related weather risks and the still-elevated uncertainty from Middle East geopolitical tensions," said Sengupta.
 
The RBI had earlier this year announced a special window banks to raise foreign currency FCNR (B) deposits, which would allow banks to raise FCNR (B) deposits and swap them at concessional rates. 
 
According to its latest data, $40.81 billion have been cumulatively raised via FCNR (B) deposits, overseas foreign currency borrowings (OFCB) and external commercial borrowings.

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Sengupta noted that since the rupee had fairly stabilised following RBI measures, there was limited need for the MPC to turn more hawkish in the near-term.
 
With the crude oil prices below $95 per barrel, the RBI may revise its inflation forecast "modestly lower," he added.
 
Sonal Badhan, economist at Bank of Baroda also sees the MPC in a wait-and-watch mode this time. Badhan also expects MPC members will remain watchful of the progress of the monsoon and its impact on food inflation.
 
"Given that RBI estimates for Q1 growth had already factored in the impact of US-Iran war on Indian economy, we expect growth to come in line with these estimates (6.6-6.8 per cent) and gives no reason for the central bank to alter its forecasts at this stage. In case of inflation, upside risks remain with elevated global oil prices, weak monsoon at home and lower water reservoir levels," Badhan noted.

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Soumya Kanti Ghosh, the group chief economic advisor at State Bank of India also believes the MPC may keep rates unchanged, but the tone could still reprice expectations.
 
" The MPC may keep rates unchanged. But, current backdrop has made soft language costlier: oil volatility, rupee pressure, external-flow caution and higher inflation projections make an explicitly dovish message less likely," Ghosh stressed.