RBI has not touched the repo rate in the current financial year after hiking it by 250 basis-points between May 2022 and February 2023
The Reserve Bank of India’s Monetary Policy Committee’s decision on October 6 is largely expected to be a non-event for financial market participants. The central bank is expected to keep unchanged the benchmark interest rate at 6.50 per cent and policy stance at “withdrawal of accommodation.”
After hiking the repo rate by 250 basis-points between May 2022 and February 2023, RBI has not touched the interest rate in the current financial year.
However, according to experts, the central bank will continue the revision of its inflation projection, currently at 5.4 per cent for 2023-24. Accordingly, quarterly projections also expected to be revised. Since the rate setting panel has found comfort from cooling of vegetable prices in last two months, the revision will likely be marginal.
A revision in RBI’s GDP projections may also be on cards but not with similar certainty. It has projected India’s GDP growth rate for 2023-24 at 6.5 per cent and kept it unchanged in last two policy reviews.
Considering US Federal Reserve’s “higher-for-longer” stance on interest rates with projection of another hike in 2023, RBI Governor Shaktikanta Das is expected to sound hawkish in his commentary while announcing the decision.
Market participants will also be watchful of the governor’s commentary on the Indian currency, which has depreciated more than 0.5 per cent from the last policy.
Market participants are of view that rate cuts by RBI will happen not before 2024-25. Any signal from the central bank that changes this expectation will possibly be the biggest trigger for the markets.