RBI's Panel Starts Talks on Interest Rates; Decision Expected on Feb 8
RBI's Panel Starts Talks on Interest Rates; Decision Expected on Feb 8

The panel led by RBI Governor Shaktikanta Das has begun discussions today, and a decision is expected by February 8th. It's anticipated that the central bank will likely maintain the current short-term lending rates, given that retail inflation remains at the upper end of the bank's comfort zone.

For nearly a year, the Reserve Bank has kept the repo rate steady at 6.5%. The last adjustment was in February 2023 when it was raised from 6.25% to 6.5% to tackle inflation, mainly influenced by global factors.

Though retail inflation has slightly decreased from its peak of 7.44% in July 2023 to 5.69% in December 2023, it remains high but within the RBI's comfort range of 4-6%.

Governor Das will reveal the Monetary Policy Committee's decision on Thursday morning.

The State Bank of India (SBI) predicts that the RBI will likely continue its current stance in the upcoming policy. According to SBI, the recent robust US employment data and wages have tempered expectations for immediate rate cuts. The first possible rate cut, as per SBI, may be in the June to August period.

SBI also expects the RBI to persist with its tightening stance.

Furthermore, SBI forecasts that CPI will be around 5.4% in 2023-24 and between 4.6% to 4.8% in the following fiscal year (2024-25).

The government has mandated the RBI to keep CPI inflation at 4%, with a margin of 2% on either side.

Raoul Kapoor, Co-CEO of Andromeda Loans, anticipates that the RBI will likely maintain the current interest rates due to the challenge of high inflation, which is close to the upper limit of the RBI's target. Kapoor emphasizes the need for a cautious approach given current inflationary pressures.

While immediate rate cuts may not be imminent, Kapoor suggests that the possibility of a supportive monetary policy in the near future provides some optimism.

The Monetary Policy Committee is responsible for determining the policy repo rate to meet the inflation target while considering growth objectives.

In an off-cycle meeting in May 2022, the MPC raised the policy rate by 40 basis points, followed by subsequent hikes until February 2023. The repo rate saw a cumulative increase of 250 basis points between May 2022 and February 2023.

The MPC comprises three external members: Shashanka Bhide, Ashima Goyal, and Jayanth R Varma. Alongside Governor Das, RBI officials Rajiv Ranjan (Executive Director) and Michael Debabrata Patra (Deputy Governor) are also part of the committee.

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