RBI MPC announcements today: Repo rate to stay unchanged at 6.5%? What economists expect

RBI MPC announcements today: The Reserve Bank of India (RBI) will announce a slew of decisions related to the repo rate, gross domestic product (GDP) target and inflation outlook following the conclusion of the meeting of its Monetary Policy Committee (MPC) today, April 5. All eyes remain on whether the central bank will keep the repo rate unchanged at 6.5% or initiate the much-awaited cycle of slashing the benchmark lending rate.

The repo rate – the rate at which the RBI lends to commercial banks – was last revised upwards by 25 basis points (bps) in February 2023. In the six bi-monthly policy review meetings since then, the RBI has maintained a pause.

However, in the MPC meeting held in February 2024, one member of the panel, Jayanth Varma, voted in favour of slashing the repo rate even as five others were in favour of keeping it steady at 6.5%.

What repo rate action economists expect from this RBI MPC meeting?

Economists largely see the RBI keeping rates steady in this round of the monetary policy review. Icra Ratings chief economist Aditi Nayar said the repo rate is unlikely to be changed, given the fact that the economy has grown at a rate of over 8% in the last three quarters – as per the upward revision made by the National Statistics Office (NSO) – and the retail inflation rate coming in at 5.1% in February 2024, which is still significantly higher than the RBI’s medium-term target of 4%.

“Icra believes that the policy stance is unlikely to be changed before the August 2024 MPC review until there is visibility on the monsoon turnout as well as on the sustenance of the growth momentum and the US Fed’s rate decisions,” Telegraph quoted Nayar as saying.

According to news agency Reuters, all 56 economists polled by it between March 15-22 were of the view that the RBI will leave the rates unchanged in the April 3-5 MPC meeting.

A note issued by CareEdge Ratings also pointed out that the RBI MPC will maintain status quo on both rates and stance – withdrawal of accommodation – in the upcoming policy meeting.

Any rate cut is expected to commence only in the second half of calendar year 2024, it added.

Meanwhile, economists at Goldman Sachs Research see a 25 bps rate cut in the July-September period, followed by a similar rate in October-December. The analysts at Morgan Stanley also foresee two rate cuts, of 25 bps each, starting from August or September this year.

Since headline inflation is still above 5%, the RBI will remain “cautious about cutting rates too soon”, Alexandra Hermann, a lead economist at Oxford Economics, was reported as saying.

A section of the economists are also of the firm view that the RBI will initiate rate cuts only after the US Federal Reserve begins reducing the benchmark lending rates. The American central bank, in its review meeting last month, kept the key rates unchanged in the range of 5.25-5.5%, but projected three rate cuts of 25 bps each in calendar year 2024.