RBI's 3-day MPC meeting starts today, repo rate may increase by 25 basis points

 

• Retail inflation based on the Consumer Price Index (CPI) showed signs of moderation in November and December as it slipped below the RBI's upper tolerance level of 6 per cent.

The three-day deliberations of the meeting of the Reserve Bank of India's Monetary Policy Committee (MPC) - the rate-setting panel of the Reserve Bank of India (RBI) - is set to begin today. The verdict will be pronounced on February 8. With retail inflation showing signs of softening and the US Fed reducing the pace of its benchmark interest rate hike, the Reserve Bank is likely to settle for a modest increase in the repo rate by 25 basis points, according to experts.

The RBI has been tasked with ensuring that retail inflation remains at 4 per cent with a margin of 2 per cent. However, it failed to keep the inflation rate below six per cent for three consecutive quarters from January 2022.

Retail inflation based on the Consumer Price Index (CPI) showed signs of moderation in November and December as it slipped below the RBI's upper tolerance level of 6 per cent.

On his expectations of news from the MPC, Dhruv Agarwal, Group CEO, Housing.com, said, "The RBI will likely stick to a modest increase in its benchmark lending rate in the upcoming policy announcement, before pausing further hikes later in 2023." Agency PTI.

On the other hand, Ranen Banerjee, partner and leader, economic advisory services, at PwC India, said that with the US Fed reducing the quantum of hike to 25 bps, the CPI within the RBI's tolerance range, the yield gap between the US and India has widened to approx. Used to be. At 3.75 percentage points, sluggish exports and the need to keep borrowing costs low for the government and the private sector, the MPC does not have many reasons for further rate hikes.

“The only argument for a rate hike too soon would be a pause could de-anchoring inflation expectations. On this front too, given our inflation is mostly demand-based and not supply-based, the arguments are weak.

"We should not be surprised if the majority in the MPC actually goes for a pause or a 10-15 bps increase in the repo rate from an indicative perspective," it said.

*With inputs from agencies