RBI rate, stance to stay on pause: Poll
MUMBAI : The Reserve Bank of India’s (RBI) monetary policy committee (MPC) is likely to leave interest rates and policy stance unchanged at its meeting this week, according to a Mint survey of 10 economists. The expected status quo will be in the backdrop of a sharp spike in vegetable prices, uneven monsoon and diverging monetary policies worldwide. All economists expect MPC to keep the repo rate unchanged at 6.5% and retain the stance of withdrawal of accommodation.
While the majority expects RBI to maintain a prolonged pause after the August policy, the market is pencilling in a 50% chance of 25 basis points (bps) hike over the next two RBI meetings. Since the last policy in June, inflationary pressures have increased, with vegetable prices seeing a sharp jump. This is likely to keep headline consumer price inflation above 6% over the next two-three months before it starts slowing down.
Core inflation is likely to remain relatively comfortable, averaging at around 4.7% for the rest of FY24. Economists, however, expect RBI to put the onus on more effective administrative measures to quell rising food prices rather than tap monetary policy tools. The expectation, therefore, is that the rate-cutting cycle is likely to begin only by the first half of the next fiscal year.
“We expect MPC to extend its pause on 10 August and keep the stance unchanged at ‘withdrawal of accommodation’. The accompanying commentary is expected to reflect their vigilance on inflation whilst highlighting the supply-driven nature of the recent run-up," said Radhika Rao, senior economist at DBS Bank. “Not only are rate cut expectations getting priced out, but our rates strategists also noted earlier this week that the overnight indexed swap (OIS)
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