The unchanged repo rate decision by the MPC leaves the economy in suspense. Let’s find out what lies ahead.
In a move that came as no surprise to everyone who had been predicting it, the RBI Monetary Policy Committee (MPC) has once again decided to keep the repo rate unchanged at 6.5%. With inflation numbers beginning to cool off and GDP figures exceeding expectations, this decision was widely anticipated.
However, home buyers, banks, and everyone else are keen to know if RBI maintains its wait-and-watch approach or if there are any near-term signs of a rate cut.
Let’s find out.
What’s Happening?
In a surprising twist, the RBI decided to hit the brakes and kept the repo rates unchanged at 6.5% during the last MPC meeting. Back then, the RBI governor mentioned that it was just a pause, and their stance hadn’t shifted. But things have changed since then! Even the US Fed has adopted a less hawkish approach.
And on similar lines, RBI has again kept the repo rate unchanged.
Let’s take a look at inflation. The retail inflation rate had a couple of good months and recorded an 18-month low of 4.7% in April 2023. But, the RBI Governor, Shaktikanta Das, pointed out that headline inflation in India is still above the central bank’s 4% target and is expected to stay that way for the rest of the year.
But wait, there’s more! Our economy is showing strong signs of recovery. The March quarter GDP reading exceeded economist expectations with a solid 6.1% growth, signalling that the recovery is confidently walking on the right path.
With all these positive developments, it makes sense for the RBI to pump the brakes on hiking rates, at least for now.
There is also a lingering risk. Food inflation, particularly in cereals and milk, is still causing some heartburn, and El Niño may pose a significant inflation threat. If it occurs, it could affect monsoon rains, which would impact core inflation in the upcoming months.
Critical Takeaways From The MPC Meeting
- The SDF rate remains unchanged at 6.25% (25 basis points below the repo rate).
- Bank and MSF rates are also unchanged at 6.75% (25 basis points above the repo rate).
- GDP projection for FY24 was maintained at 6.5%, with upgrades for Q1 and Q2 but cuts for Q3 and Q4.
- Expected inflation for FY24 lowered by 10 bps to 5.1%.
Looking ahead, rate cuts are not on the agenda in the near future. Furthermore, with 50% of Rs 2,000 notes returned to the banking system, it appears that banks are enjoying a prosperous time. Consequently, the policy statement emphasised the importance of effective liquidity management to provide banks with increased flexibility.
What’s Next?
The main takeaway from the June RBI policy is that homebuyers will have to struggle with high-interest rates for some time as rate cuts are not expected in the immediate future. Inflation continues to be a significant challenge for the RBI, and we anticipate gaining further clarity on their stance when the minutes of the MPC meeting are released on 22nd June 2023.
That’s it for today. We hope you’ve found this article informative. Remember to spread the word among your friends. Until we meet again, stay curious!
*The article is for information purposes only. This is not an investment advice.
*Disclaimer: https://tejimandi.com/disclaimer
