In June this year, the Reserve Bank of India (RBI) Governor decided to maintain the repo rate at 6.5% for the eighth consecutive Monetary Policy Committee (MPC) meeting. This decision was part of a broader strategy to manage inflation while supporting economic growth. The RBI has consistently held the repo rate at 6.5% since February 2023, following a series of six rate hikes between May 2022 and February 2023, which saw the rate rise from 4% to its current level.
RBI Governor Shaktikanta Das is scheduled to announce the MPC's decision on the repo rate at 10 AM on Thursday, after the conclusion of the three-day meeting that began on Tuesday. The MPC, composed of six members—three central bank officials and three external experts—is responsible for setting India's benchmark interest rate, known as the repo rate. This rate influences the cost of borrowing for banks and subsequently affects loan interest rates for businesses and individuals.
The current meeting is the third of the year, following sessions in April and June. The last policy meeting took place in February, and the next one is scheduled for October 7-9. The MPC meets for three days before announcing its decision at the end of the session.
Suman Bannerjee, Chief Investment Officer at Hedonova, expects the RBI to maintain the current benchmark rate unchanged. He explains that amid persistent inflationary pressures, particularly due to rising food prices, the RBI is likely to hold the rate steady. This cautious approach aims to balance economic growth with price stability. By maintaining the rate, the RBI seeks to mitigate inflation without hindering economic momentum.
YES Bank economists echo this sentiment, noting significant changes in the global financial landscape, such as the start of a rate-cutting cycle by advanced economies like the European Central Bank (ECB) and the Bank of England (BoE), which have already reduced rates by 25 basis points. However, they do not expect the RBI to follow suit in the upcoming August meeting. They predict inflation might fall to around 4% in the second quarter of the fiscal year 2025, but it could rise again to 4.9% and 4.6% in the third and fourth quarters of FY25, respectively. The RBI has indicated its goal of achieving a 4% inflation target on a durable basis, suggesting an extended pause on rate adjustments until this target is consistently met.
Pradeep Aggarwal, Founder and Chairman of Signature Global (India) Ltd, also believes the RBI will likely keep the interest rate steady for the eighth consecutive time. He suggests this would reflect a balanced approach in light of persistent food inflation, even though the Consumer Price Index (CPI) is within the target range. Economists predict potential rate cuts of 25-50 basis points in the second half of the fiscal year, contingent on continued declines in inflation.
In summary, the RBI has kept the repo rate at 6.5% since February 2023, with a focus on managing inflation and supporting economic growth. The upcoming announcement on August 8 is anticipated to maintain this rate, reflecting a cautious approach amid ongoing inflationary pressures and a changing global financial environment.
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