What to Expect from RBI’s policy meet this week
The last interest rate hike by the Reserve Bank of India (RBI), in the current rate hike cycle, happened on 8 February. The next meeting is round the corner, on 6 October. It is likely that RBI would pause at the current level for some time. There is also a faint expectation that RBI may hike the rate one last time, taking the repo rate from 6.5% to 6.75%. Here are two factors that will influence the decision by RBI.
Inflation spike: Consumer price inflation (CPI) hit a high of 7.44% in July. This was higher than RBI’s tolerance band of 6 %, higher than what the market was expecting, and a leap from June’s 4.87%. This had more to do with supply-oriented issues. It was largely due to vegetable prices, which shot up due to an erratic monsoon and other reasons. Till 28 September, rainfall was 6% lower than the long-period average. We have already seen that tomato prices have eased from its peak of more than 100. The government has taken measures on grain and vegetable supplies, with export restrictions, supply at controlled prices, etc. Inflation for August has eased to 6.83%.
In the policy review meeting on 10 August, RBI revised the inflation projections upward. For the financial year 2023-24, the CPI projection was revised from 5.1% in June to 5.4%. The revision was steepest for the July-September quarter. From 5.2% earlier, projection for the quarter was raised by one percentage point to 6.2%. Inflation for July and August being 7.44% and 6.83%, respectively, there is a possibility that CPI for the July-September quarter may overshoot RBI’s projection of 6.2%. Crude oil prices have moved up to around $94 a barrel. However, petrol and diesel rices have not been increased for some time, which is a saving grace in the
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