As the Reserve Bank of India (RBI) gears up for its impending monetary policy review, experts anticipate that the central bank will keep the benchmark interest rate at 6.5%. Factors such as persistent inflationary pressures and global uncertainties are poised to weigh heavily on the RBI’s decision-making process. With the RBI having maintained the same rate over the past three reviews, it is likely that the current rate structure will endure.
Interest rates for both retail and corporate borrowers are likely to remain steady, according to experts’ projections for the Reserve Bank of India’s forthcoming bi-monthly monetary policy review, scheduled for later this week. The prevailing economic landscape, characterized by elevated inflation and global economic variables, is expected to influence the RBI’s decision.
The Reserve Bank embarked on a series of rate increases in May 2022, driven by the Russia-Ukraine conflict, ultimately raising the policy rate to 6.5% in February of the current year. Since then, the central bank has maintained this rate throughout the past three successive bi-monthly monetary policy reviews. The Monetary Policy Committee (MPC), led by RBI Governor Shaktikanta Das, is set to convene for a three-day meeting commencing on October 4, with the official decision announcement scheduled for Friday, October 6.
Madan Sabnavis, Chief Economist at Bank of Baroda, opined, “The credit policy this time will most likely continue with the existing rate structure as well as policy stance. Hence, the repo rate will be retained at 6.5 per cent with the stance of withdrawal of accommodation.” Sabnavis also noted that while retail inflation is currently at a substantial 6.8%, it is expected to decrease significantly in September and October. However, lingering concerns regarding the Kharif crop output, particularly with regard to pulses, could potentially exert upward pressure on prices. Nonetheless, with the trajectory of inflation trending downward, a rate hike seems unlikely, although the MPC may postpone any rate cuts.
Karthik Srinivasan, Senior Vice President & Group Head – Financial Sector Ratings at ICRA Limited, shares a similar perspective, foreseeing the MPC opting for a status quo on the policy rate and stance. He emphasized that the liquidity tightening witnessed in the latter half of September is unlikely to persist, particularly with the release of liquidity stemming from the incremental Cash Reserve Ratio (CRR) imposed in the previous policy. Furthermore, Srinivasan highlighted the RBI’s cautious stance in response to rising interest rates in emerging economies since the last policy review, considering its potential impact on capital flows, foreign exchange reserves, and exchange rates.
The Indian government has entrusted the RBI with the responsibility of ensuring that the Consumer Price Index (CPI)-based retail inflation remains at 4%, with a permissible margin of 2% on either side.
Rajan Bandelkar, President of the National Real Estate Development Council (Naredco), expressed expectations that the RBI will maintain its accommodative stance during the October MPC meeting. While acknowledging the extended pause on the repo rate, Bandelkar emphasized the urgency of focusing on the real estate sector, especially during the ongoing festive season. He believes that positive actions by the RBI at this juncture could play a pivotal role in achieving housing targets.
The cost of borrowing, which started to rise in May of the previous year, has remained stable since the RBI’s decision to keep the repo rate unchanged at 6.5% since February when it was increased from 6.25%. Subsequently, in the following three bi-monthly policy reviews in April, June, and August, the benchmark rate was retained.
As the RBI prepares to announce its decision later this week, market participants and economists will keenly await the central bank’s stance on interest rates, closely monitoring its assessment of the economic landscape and inflationary pressures. The RBI’s approach will have far-reaching implications for borrowers, businesses, and the broader economy, as it seeks to navigate a complex and evolving financial environment.
