New Delhi: The Reserve Bank of India started its first monetary policy committee meeting since the Lok Sabha 2024 election outcome. While the RBI’s operations should not be affected by the poll outcome, its push for digitalisation, a flagship project of the Narendra Modi administration will be in focus. To be sure, the central bank is unlikely to tinker with the repo rate, even as inflation moderated closer to its target of 4 per cent.
Further, despite assertions to the contrary, RBI’s repo rate changes in recent times have mostly tracked the US Federal Reserve’s stance. With the economy having grown at 8.2 per cent in FY24, the GDP growth is better than expected and inflation has mostly remained under control as a result of monetary policy and fiscal interventions by the government.
However, with the ruling BKJP-led NDA’s hand weakened by the poll outcome on June 4, 2024, the government will have to intervene in a stronger way to curb the price rise. The central bank had indicated that the repo rate may start unwinding in the second half of this financial year, overlapping with the tentative timeline indicated by the Federal Reserve.
Will loans turn cheaper?
The Reserve Bank of India’s policy calculus is unlikely to change, according to ANZ Research’s India Insight report authored by economists Sanjay Mathur and Dhiraj Nim. They expect RBI to “remain focussed on bringing inflation down.” The central bank will likely remain hawkish for a longer duration, they said.
The RBI has kept the repo rate unchanged at 6.50 per cent. This has led to a rise in the interest rate offered by banks. To be sure, elevated home loan rates have not slashed the interest in property buying across India. The RBI is expected to slash repo rate cuts starting December 2024, according to the report.
The Reserve Bank of India is expected to continue regulation of banking sector liquidity until then, besides keeping an eye on rupee stability. According to SBI Research, RBI is expected to continue with the “withdrawal of accommodation” stance. However, a rate cut was ruled out before the third quarter of FY25.
SBI Research also suggested that the RBI should consider a more innovative tool of liquidity management compared to open market operations (OMO) and variable rate reverse repo (VRRR) operations.
RBI 3rd most efficient central bank at managing inflation
SBI Research in a report titled Prelude to MPC Meeting, stated that RBI was the third most efficient bank in the world after that of Thailand and Poland at managing inflation during the ongoing global economic crisis. This was calculated by using the BCC Model of Data envelopment analysis.
SBI group chief economic advisor Soumya Kanti Ghosh stated that the CPI inflation reading is expected to reach within the RBI’s tolerance band in the first half of FY25, and average 4.5 per cent for full-year FY25. While the US is unlikely to slash inflation before September, the ECB is signalling a rate cut starting from its June 6, 2024 meeting.
RBI Monetary Policy: The Reserve Bank of India is expected to keep the repo rate unchanged at 6.50 per cent and the stance unaltered at withdrawal of accommodation, say experts. Economy Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
