analysts-weigh-in-mpc-likely-to-keep-repo-rate-unchanged

The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) is gearing up for its first meeting of the financial year 2024-25, scheduled to take place from April 3 to 5. Market analysts widely expect the committee to maintain the status quo on the repo rate, holding it steady at 6.5%, and continue with the 'withdrawal of accommodation' policy stance.

The rationale behind this cautious approach lies in the persisting risks to food inflation, which could potentially impact the consumer price index (CPI) or retail inflation.

What's been the recent trend with the repo rate?

Since a 25-basis point hike in February 2023, the repo rate has remained consistent over seven consecutive MPC meetings.

How do global developments factor in?

Recent decisions by the US Federal Reserve and the Bank of Japan are relevant. The US Fed chose to maintain its interest rate range, while the Bank of Japan ended an eight-year negative interest rate regime by raising its rate.

Despite relatively stable retail inflation figures, analysts suggest that the RBI is unlikely to consider a rate cut until the 4% inflation target is consistently met.

Economic outlook for India: Optimism prevails, with forecasts indicating strong growth in fiscal year 2024. Finance Minister Nirmala Sitharaman anticipates robust growth in the fourth quarter, potentially propelling GDP growth for the entire fiscal year to 8% or higher.

Anticipated stance of the MPC: The majority expectation is for the committee to maintain the 'withdrawal of accommodation' stance, but there's a possibility of a shift to a 'neutral' stance, according to some analysts.

Implication for borrowers: Borrowers linked to external benchmark lending rates (EBLR) may not see increases in their equated monthly installments (EMIs), but those tied to marginal cost of fund-based lending rate (MCLR) could experience interest rate hikes.

Potential future scenario regarding the repo rate: The Goldman Sachs report suggests potential repo rate cuts in the third and fourth quarters of the 2024 calendar year.