RBI’s MPC meeting starts amid expectations of lower rate hike

MUMBAI: RBI Governor Shaktikanta Das-headed Monetary Policy Committee (MPC) started its three-day meeting on Monday amid expectations of a smaller 25 basis points rate increase or a pause on the rate hiking spree that started in May last year to check inflation.

The decision of the six-member rate setting panel will be announced by the Governor on Wednesday.

With retail inflation showing signs of moderation and remaining below the Reserve Bank of India’s 6 per cent upper tolerance level, and projected slowdown in GDP growth in the next fiscal starting April, experts are of the opinion that the central bank may only opt for a 25 basis points hike in the key interest rate.

Another opinion is that the RBI may press the pause button on rate hike on Wednesday itself.

“We expect the RBI to pause in February policy,” State Bank of India’s Economic Research Department said in a report titled ‘Prelude to MPC Meeting on Feb 6-8, 2023’.

In the current rate cycle, it said that rate actions, both hikes and cuts, have been largely synchronised with actions of the monetary authorities in the developed nations.

The stance, the SBI report said could continue to be withdrawal of accommodation, even as liquidity is close to neutral.

“Even though the RBI could pause as it allows past rate actions to work with long and variable lags, the RBI could still guide the markets with a rate action in future that will be purely data dependent,” it said.

According to the report, 6.25 per cent repo rate could be the terminal rate for now.

In its December monetary policy review, the central bank raised the key benchmark interest rate (repo) by 35 basis points (bps) after delivering three back-to-back increases of 50 bps.

Since May last year, the RBI has increased the short-term lending rate by 225 basis points to contain inflation, mostly driven by external factors, especially global supply chain disruption following the Russia-Ukraine war outbreak.