RBI Expected to Maintain Status Quo on Interest Rates Amid Inflation Concerns

RBI Expected to Maintain Status Quo on Interest Rates Amid Inflation Concerns

As the Reserve Bank of India (RBI) prepares for its upcoming bi-monthly monetary policy review, experts predict that the central bank will keep the benchmark interest rates unchanged. The repo rate, which has remained at 6.5% since February 2023, is expected to stay the same due to concerns over rising inflation and uncertainty caused by the ongoing Middle East crisis. The reconstituted Monetary Policy Committee (MPC), including three newly appointed external members, will conduct its first meeting, with the outcome to be revealed by RBI Governor Shaktikanta Das on October 9, 2024.

Analysts believe that although inflation has been moderating, it remains above the 4% target set by the government, especially for September and October. Core inflation is also edging upward, and geopolitical tensions, including the Iran-Israel conflict, could further escalate oil prices, affecting inflation. Madan Sabnavis, Chief Economist at Bank of Baroda, noted that inflationary pressures and uncertainty make it unlikely for the RBI to change its policy stance this week. However, there may be a slight reduction in inflation forecasts, with no significant change in the GDP outlook.

Economists also project that the RBI may shift its stance to neutral in the October 2024 review, setting the stage for potential rate cuts in December 2024 and February 2025. Aditi Nayar, Chief Economist at Icra, suggested that with lower-than-expected GDP growth and inflation, a 25 basis point rate cut could be possible later this year. Similarly, a report by HSBC anticipates the RBI will adopt a neutral stance in the October meeting, followed by repo rate reductions, citing falling inflation and external conditions moving from rate hikes to cuts.