Ahead of RBI MPC review meet on Oct 6 economists favour status quo in policy rates

Ahead of the upcoming meeting of the Reserve Bank of India’s Monetary Policy Committee (MPC), economists are mostly in sync with the view that the Central Bank is expected to keep the REPO rate unchanged in the ensuing policy review on 6 October and keep the ‘withdrawal of accommodation’ stance.

- NIVEDITA MUKHERJEE

Radhika Rao, Senior Economist, DBS Bank India, is of the view that policymakers will weigh global (oil and US dollar) and domestic (inflation, monsoon, growth indicators) developments since the last review. Rao reasons that global crude prices have surged to November 22 highs, moving above the RBI’s April estimate of USD 85bl, with September’s average about 9 per cent higher Aug. At the same time, US dollar has appreciated sharply on the back of favourable rate and growth differentials versus other G3 countries, keeping Rupee on a weakening path.

Besides, domestic developments have been mixed. August inflation had retreated from high but is still above target at 6.8 per cent yoy from 7.4 per cent in July, led by a retracement in vegetables (-6 per cent MoM vs +38 per cent in July). The broader food basket (ex-vegetables), however, has stayed firm, amidst a hand over from ‘temporary’ to ‘sticky’ pressures in cereals, sugar, pulses, and spices. Encouragingly, Rao points out, underlying pressures have continued to ease, with core at 4.8 per cent yoy and core-core (ex-food, fuel, transport, precious metals) at 5 per cent. Concurrently, growth indicators point towards relative resiliency, including power demand, railway freight and PMIs. According to Rao, the RBI MPC is expected to revise its economic projections from the current 6.5 per cent yoy for growth and 5.4 per cent for CPI inflation. Perishable food is expected to decelerate further in September ‘23 on administrative measures, including higher imports, export restrictions, better inter-state supplies and release from buffers. Non-food should also find relief from a cut in the cooking gas prices as well as a moderating core.