MPC likely to hold repo rate for fifth time in a row, shows BS poll

Likely to revise FY24 growth forecast upward

The six-member Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) is expected to keep the policy repo rate unchanged for the fifth consecutive policy review, all the 10 respondents said in a Business Standard poll.

The central bank will announce the review of the policy on December 8.
 

After increasing the repo rate by 250 basis points (bps) to 6.5 per cent between May 2022 and February 2023, the MPC hit the pause in the April review of monetary policy.
 

“Right now inflation is still above target levels and growth is holding up. So the focus remains on ensuring that inflation goes towards the 4 per cent target. The monetary policy is inclined to keep liquidity conditions tight, which they have achieved,” IDFC First Bank Economist Gaura Sengupta said.
 

Banking system liquidity tightened further in November. The Reserve Bank of India infused Rs 48,754 crore on Thursday.
 

Deficit liquidity widened to nearly a five-year high on November 21 on the back of monthly goods and services tax payments. The central bank had infused Rs 1.74 trillion on that day.
 

All the respondents to the poll except PNB Gilts expect the committee members to maintain the withdrawal of the “accommodation” stance because the upside risk to inflation remains.
 

“The RBI will continue with its stance because there are still inflationary risks, which continue to linger. And growth remains strong. So, they (RBI) have the headroom to keep monetary policy tight as of now,” said Sakshi Gupta, principal economist, HDFC Bank.
 

India’s consumer price index (CPI) inflation rate fell to 4.87 per cent in October, marking the lowest figure since June, compared to the 5.02 per cent reported in September. Despite this overall decline, the food price index exhibited a sequential increase in October, breaking a two-month downward trend.

Notably, within the food category, the vegetable price index rose 3.4 per cent month-on-month, primarily driven by a 15.5 per cent sequential surge in onion prices. Vikas Goel, managing director and chief executive officer at PNB Gilts, said there was now a chance of a shift in stance, considering the actions taken by the US Federal Reserve (Fed) thus far. 
 

Even though Fed Chair Jerome Powell left the door open for further hikes in rates, the markets say the US rate-setting panel might be done with hiking. A majority of the respondents said the RBI was likely to revise its growth projection for this financial year (FY24) slightly upwards. This expectation has been fuelled by the second-quarter growth rate surpassing the central bank’s initial projection of 6.5 per cent, reaching 7.6 per cent. The RBI projects a GDP growth of 6.5 per cent for FY24.
 

“The growth projection can be revised slightly upwards because in the last quarter growth was far more than the RBI forecast,” said Goel. Except Punjab National Bank, no respondent expects the central bank to revise its inflation forecasts for this financial year from 5.4 per cent.
 

“Last month’s inflation was lower due to the base effect. Once that base effect wears off, inflation is likely to go back to 5.4-5.5 per cent this month. All taken together, it is difficult for the RBI to do anything and show any reaction,” said Indranil Pan, chief economist, YES Bank.
 

According to the RBI’s “State of the Economy” report, food inflation poses the sole threat to the central bank’s commitment to align headline inflation with the 4 per cent target. The report said the central bank was preparing for an anticipated uptick in the inflation readings for November and December.