RBI likely to hit pause on interest rates again, say experts

The Reserve Bank of India (RBI) will likely maintain the status quo on the policy repo rate at the upcoming June Monetary Policy Committee (MPC) meeting, which is scheduled to be held from June 6 to 8.

This comes on the back of a pause in the April review. Previously, the RBI increased the repo rate in February from 6.25 per cent to 6.5 per cent. Between May 2022 and February this year the RBI raised the repo rate by a cumulative 250 basis points.  

Experts believe the RBI will continue with a pause in the upcoming meeting. A rate cut could be expected in the next MPC meet, which will be held in October. However, this will depend on the overall economic growth, financial stability and global economic conditions.

Deepak Agrawal, Chief Investment Officer of debt at Kotak Mahindra Asset Management Company, said, “At present, India is in a Goldilocks situation with strong gross domestic product (GDP) data, cool-off in inflation. The forthcoming decision of the MPC transcends the usual deliberations of interest rate hikes or pauses. Instead, it hinges on whether the MPC will pivot towards a ‘neutral’ stance or persist with the current stance of ‘withdrawal of accommodation’. Considering the prevailing ambiguity surrounding the future path of the US Federal Reserve’s rates in the coming months, our perspective leads us to anticipate a dovish message from the MPC, implying that the RBI has concluded its tightening measures, all while maintaining the existing monetary policy stance.”

Analysts said the country’s GDP growth was stronger than anticipated. However, they expressed concerns about sticky core inflation across the globe. Core inflation excludes food and fuel.

Adhil Shetty, CEO of BankBazaar.com, said with inflation moderating, most experts anticipate that the RBI will maintain status quo on the key rates in the June policy meeting. In April, the RBI decided to pause the rate hike cycle to study the impact of six consecutive rate hikes in controlling inflation. Sharp rate hikes in the last year have left borrowers under pressure from higher EMIs and longer loan tenures. A continued pause in rate hikes will give borrowers additional time to come up with ways to manage their increased EMIs and explore options to reduce their tenors.

“For instance, borrowers in the earlier phase of loan tenor may consider refinancing their loan at a lower rate and a smaller spread. Spreads on the benchmark rate have fallen from 3.5 per cent before the pandemic to 1.9 per cent, and banks usually tend to retain the spread throughout the tenure. So, if you have a good credit score, you may have a good chance to fetch a lower interest rate but keep your EMIs higher to reduce the tenure to keep the borrowing costs down,” Shetty explained.

Rumki Majumdar, Economist, Deloitte India, said, “We expect a pause in this meeting as growth concerns cannot be overlooked. With the global economy slowing down, there are risks that the slowdown contagion may impact us. Higher borrowing costs could be a worry for industries and MSMEs, which are yet to recover from the pandemic stress. Besides, rural demand is showing stress from financial concerns, which is reflected in the private consumption numbers in the latest GDP numbers. 

Globally, there are signs that the Central Banks may also take a pause or go with fewer hikes as runaway inflation takes a breather. This will further help the RBI to maintain the status quo.”