The Reserve Bank is likely to maintain status quo on policy rates for the fourth time in a row at its bi-monthly monetary policy review meeting early next month, as retail inflation continues to remain high and the US Federal Reserve has decided to keep a hawkish stance for some more time, according to experts.
The Reserve Bank had raised the benchmark repo rate to 6.5 per cent on February 8, 2023 and since then it has retained the rates at the same level in view of the stubbornly high retail inflation and certain global factors including elevated crude oil prices in the international market.
The Reserve Bank Governor-headed six-member Monetary Policy Committee (MPC) meeting is scheduled for October 4-6, 2023. The last meeting of the MPC, the highest rating-setting panel, was in August.
“We do expect the RBI to hold on to a status quo position this time as inflation is still high and liquidity tight. In fact, going by RBI forecast on inflation, it would be above 5 per cent in Q3 too, which will ensure that the status quo prevails for the calendar year for sure and probably Q4 too,” said Madan Sabnavis, Chief Economist, Bank of Baroda.
Sabnavis further said there are uncertainties relating to Kharif crop, especially on pulses, which can increase prices.
“The comfort is that there is less concern on growth which is on target,” he added.
Although the Consumer Price Index (CPI)-based retail inflation eased a bit to 6.83 per cent in August from 7.44 per cent in the preceding month in July, it remained above the Reserve Bank’s comfort level of 6 per cent.
It may be mentioned that the government has mandated the RBI to keep inflation at 4 per cent with 2 per cent margin on either side.
Aditi Nayar, Chief Economist, ICRA Limited said the headline CPI inflation is expected to ease to 5.3-5.5 per cent in September 2023 from 6.8 per cent in August 2023, benefitting from the halving of the average price of tomatoes as well as a favourable base.