The RBI Monetary Policy Committee (MPC), will start its 3-day meeting on Tuesday, and the decision of the 43rd meeting of the MPC would be announced on Thursday, June 8, 2023. The 6-member rate-setting committee is headed by RBI Governor Shaktikanta Das
According to economists, RBI MPC is likely to keep the repo rate unchanged at 6.50% even as the retail inflation is showing a downward trend. SBI believes that inflation estimates for FY24 could be downgraded by the RBI MPC. “RBI to pause in June policy," it said adding that at 6.50%, "we are in for a prolonged pause…”
According to Suvodeep Rakshit, Senior Economist, Kotak Institutional Equities, April CPI inflation at 4.7% was in line with expectations and benefitted from a favourable base effect similar to the March inflation print. "Overall, the RBI will see this print favourably and remain on a pause in the June policy while maintaining a cautious outlook on inflation," he said
"We continue to pencil in repo rate to remain unchanged for an extended period subject to global growth prospects, central bank actions, and domestic growth prospects," said Suvodeep Rakshit, Senior Economist, Kotak Institutional Equities
Aditi Nayar, Chief Economist and Head (research & outreach) at ICRA, said, “Although the impact of a favourable base effect related to the escalation of geopolitical conflict is likely to have peaked in April 2023, ICRA foresees the CPI inflation to remain range-bound at 4.7-5% in May-June 2023."
"With a dip in the CPI inflation below 5% and surprisingly subdued IIP growth, ICRA foresees a high likelihood of a pause from the MPC in its next meeting. "However, a pivot to rate cuts appears quite distant," said Aditi Nayar of ICRA. The government has mandated the RBI to ensure CPI inflation at 4% with a margin of 2% on either side
Madan Sabnavis, Chief Economist, Bank of Baroda also believes that RBI is most likely to continue to pause on the interest rates and retain repo rate at 6.5%. “The reason is that inflation has come in lower than 5% in April and will be even lower in May. This being the case, the view would be that past repo rate actions have had an effect on inflation and hence there can be another pause taken," he said
As per economists and experts, RBI MPC's policy stance will remain with ‘withdrawal of accommodation’ since there has already been an increase in liquidity as deposits increase due to the announcement of the exchange of the Rs 2,000 notes. The RBI will also be monitoring the progress of the monsoon and the possible ill effects of El Nino which can affect the kharif harvest and hence impact prices
The sticky core inflation finally fell below the 6% mark for the first time in 19 months in April to 5.2%. RBI governor Shaktikanta Das has underlined his concerns about sticky core inflation for a long time now, so this fall is much needed and will figure in the MPC’s decision-making process
RBI MPC has hiked interest rates by 250 basis points since May last year. Following Russia's invasion of Ukraine last year, the MPC held a meeting in May and hiked the interest rates by 40bps to 4.4%. Since then, it hiked repo rate in every subsequent meeting, taking report rate to 6.5%, and only left it unchanged in April 2023
Last month, RBI governor Shaktikanta Das said that change in interest rates or pausing rate hikes is not in his hands as the revision depends on external and internal factors. “Pausing interest rate hikes is not in my hands," he said adding, "It's not a decision which is entirely in my hands because I am driven by what is happening at the ground level"