RBI's rate setting panel starts deliberations; decision on Feb 8

New Delhi; RBI Governor Shaktikanta Das-headed rate-setting panel on Tuesday started its three-day deliberations amid expectations of continued status quo on short-term lending rates as the retail inflation remains near the higher end of the central bank's comfort zone.

For almost a year, the Reserve Bank has kept the short-term lending rate or repo rate stable at 6.5 per cent. The benchmark interest rate was last raised in February 2023 to 6.5 per cent from 6.25 per cent to contain inflation driven mainly by global developments.

The retail inflation in the current financial year has declined after touching a peak of 7.44 per cent in July 2023, it is still high and was 5.69 per cent in December 2023, though within the Reserve Bank's comfort zone of 4-6 per cent.

Governor Das will announce the decision of the Monetary Policy Committee (MPC) on Thursday (February 8) morning.

State Bank of India (SBI) in a report said the RBI is expected to continue its pause stance in upcoming policy.

"Strong US non-farm payroll data and wages seem to have pushed back on market expectations for a quick pivot to rate cuts," it said, and added the first rate cut on the table could be from June to August period "looks the best bet now".

The state-owned lender also expects the RBI will continue with the withdrawal of accommodation stance.

SBI further said the CPI is expected to come around 5.4 per cent in 2023-24 and 4.6 per cent to 4.8 per cent in the next fiscal (2024-25).

The government has mandated the central bank to ensure the retail inflation based on the Consumer Price Index (CPI) remains at 4 per cent with a margin of 2 per cent on either side.

On expectations from the policy, Raoul Kapoor, Co-CEO of Andromeda Loans, said the RBI is anticipated to maintain the current interest rates.

"This decision is primarily influenced by the persistent challenge of high retail inflation, which remains uncomfortably close to the upper limit of the RBI's inflation target at 6 per cent. The current inflationary pressures necessitate a cautious approach," he said.

Overall, while immediate interest rate cuts might not be on the horizon, the prospect of a supportive monetary policy stance in the near future offers a ray of hope, Kapoor added.

The MPC is entrusted with the responsibility of deciding the policy repo rate to achieve the inflation target, keeping in mind the objective of growth.

In an off-cycle meeting in May 2022, the MPC raised the policy rate by 40 basis points and it was followed by rate hikes of varying sizes, in each of the five subsequent meetings till February 2023. The repo rate was raised by 250 basis points cumulatively between May 2022 and February 2023.

The MPC consists of three external members and three officials of the RBI.

The external members on the panel are Shashanka Bhide, Ashima Goyal, and Jayanth R Varma. Besides Governor Das, the other RBI officials in MPC are Rajiv Ranjan (Executive Director) and Michael Debabrata Patra (Deputy Governor).