RBI’s MPC To Conclude Today, Analysts Expect Modest Rate Hike Of 25 Bps

The Reserve Bank of India (RBI’s) Monetary Policy Committee (MPC) meeting will conclude today against the backdrop of the Union Budget 2023-24, management of inflation and growth targets. Ahead of the concluding remarks by RBI Governor Shaktikanta Das, analysts expect the MPC to opt for a modest rate hike of 25 basis points (bps) to 6.50 per cent. 

The RBI MPC which started on Monday drew a lot of eyeballs as it was the first meeting of the new calendar year. Since Bank of England (BoE) and the US Federal Reserve already presented their stance on the repo rate hike on the backdrop of global economic headwinds, RBI’s stance becomes even more crucial in order to insulate the economy from any shocks. 

While all eyes are set on the rate action by MPC, many are also interested in knowing the prospects of future rate hike, their pace and liquidity management, especially since the Budget 2023-24 presented some investment-heavy ideas. 

Madan Sabnavis, Chief Economist, Bank of Baroda said, “While inflation has been trending downwards there has been a tendency for core inflation to remain sticky. Inflation has come down mainly due to lower food inflation which can be volatile. Also, the decision taken this time cannot be reversed soon. Under these conditions, the RBI will pitch for another 25 bps hike in the repo rate which will be the last in this cycle, and then pause.”

However, on the other side, there are some analysts who also believe that the RBI MPC may not indulge in any rate hike this time. As per reports, several economists at SBI said that they expect the Reserve Bank of India (RBI) to hit the pause button on interest rate hike at its upcoming monetary policy review. 

Taking a view of the Indian economy, Deepak Agrawal, CIO, Debt, Kotak Mahindra Asset Management Company said, "Given that real rates are likely to be 100 bps higher than FY 24 inflation, we don’t see a case for a rate hike in the Feb 23 policy. However due to sticky core inflation and narrowing interest rate differential with US, RBI may deliver final rate hike of 25 bps. We also expect the monetary policy stance to be changed from ‘withdrawal of accommodation’ to ‘neutral’ indicating that further monetary actions would be data dependent.”