RBI Monetary Policy Meeting: Various economists have suggested that the Reserve Bank of India's (RBI) monetary policy committee (MPC) may increase the repo rate by 25 basis points (bps) during the April meeting in order to combat rising inflation. The MPC is scheduled to convene between April 3-6.
However, a report by SBI Research has forecasted that the MPC may maintain the status quo on the policy rate. The report suggests that the repo rate is already higher than the optimal requirement by around 25 bps and a repo rate of 6.5 percent could be considered as the terminal rate.
The optimal repo rate, as per the SBI Research report, was determined by considering three factors. These are the RBI's inflation projection of 5.2 percent to 5.5 percent in FY24, anticipated sticky core inflation in the range of 5.4 percent to 5.6 percent in FY24, and the expected Fed future implied terminal rate in the range of 4.85-4.95 percent in calendar year 2023.
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Rajani Sinha, the chief economist at CareEdge, has suggested that the RBI may increase the repo rate by 25 basis points (bps) once more before pausing during this cycle. This is due to core inflation remaining above 6 percent and the resurgence of food inflation.
According to a report by ICRA, the repo rate hike expected in April 2023 would result in a repo rate of 6.75 percent. This rate is more than 100 basis points higher than the MPC's CPI inflation forecast for H2FY2024. ICRA suggests that this increase may be sufficient as GDP expansion is expected to be similar to potential GDP growth during that period.
Since May of last year, the RBI has raised the repo rate by 250 basis points as a measure to combat the escalation of inflation.
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There are economists who anticipate that the central bank will take a pause in the upcoming policy and adopt a more data-dependent approach for further evaluation. ICRA has suggested that following the anticipated rate hike in April, there should be an extended pause throughout the remainder of FY24 to examine the transmission of policy tightening.
According to a QuantEco Research report, the RBI may adopt a more data-dependent approach, keeping a close watch on domestic growth-inflation dynamics and any potential contagion from stress in the US banking system. If there are any signs of stress, the RBI is expected to be nimble and proactive.