RBI Monetary Policy Meeting: Governor Shaktikanta Das to Announce Key Decisions on October 9, 2023
The Reserve Bank of India (RBI) is gearing up for its crucial monetary policy meeting from October 7 to 9, 2023, where Governor Shaktikanta Das will reveal the committee's policy decisions. In the previous nine consecutive meetings, the RBI has maintained the repo rate at 6.50%, aiming to strike a balance between inflation control and economic growth. As the upcoming meeting approaches, market participants and analysts are keenly observing for any indications of a shift in the RBI's stance.
Key factors influencing the committee's decision include inflation rates, particularly in food and fuel sectors, global economic uncertainties such as fluctuating crude oil prices and geopolitical tensions in the Middle East, as well as India's overall economic growth prospects. Analysts suggest that persistent inflationary pressures and global uncertainties could prompt the RBI to reassess its current policy stance.
The consensus among economists is that the RBI is likely to maintain the benchmark repo rate at 6.50% for the tenth consecutive time. However, opinions are divided regarding the monetary policy committee's (MPC) stance. Half of the economists surveyed by Mint anticipate that the MPC will continue with its ‘withdrawal of accommodation’ stance, while the other half predict a shift to a ‘neutral’ stance for the first time in two years since the onset of the rate hike cycle.
Madan Sabnavis, Chief Economist at Bank of Baroda, stated, “We do not expect any changes in the repo rate or stance by the MPC. Inflation for September and October is projected to exceed 5%, and the current low inflation levels are primarily due to base effects. Additionally, core inflation is gradually increasing. Given the potential escalation of the Iran-Israel conflict, maintaining the status quo is the most likely outcome, even for the new members.” He also noted that inflation forecasts might be adjusted downwards by 10-20 basis points, with no significant changes expected in GDP forecasts.
Icra's Chief Economist Aditi Nayar expressed that the initial quarter's GDP growth has fallen short of the MPC's expectations, and a significant undershooting in the second quarter's CPI inflation is anticipated. She believes that a shift to a neutral stance may be warranted in the October 2024 policy review, potentially leading to gradual rate cuts of 25 basis points each in December 2024 and February 2025. Nayar highlighted that favorable monsoon conditions could mitigate crop inflation risks, although global political developments and geopolitical uncertainties remain critical factors affecting growth and inflation dynamics.
An HSBC report identified three notable trends: recent softer growth figures, declining inflation rates, and a shift in the external environment from rate hikes to potential cuts. The report suggests that the RBI may benefit from altering its stance from a hawkish 'withdrawal of accommodation' to 'neutral' during the upcoming meeting on October 9, followed by repo rate reductions of 25 basis points in the December and February meetings, ultimately lowering the repo rate to 6%.
In a related development, the central government recently appointed three new members to the RBI's monetary policy panel, which consists of six members, with external members routinely nominated by the government.