New Delhi [India], February 5 : The Monetary Policy Committee of the Reserve Bank of India (RBI) in its February review meeting is expected to again put a pause on the repo rate, according to SBI Research.
In its December meeting, the RBI unanimously decided to keep the policy repo rate unchanged at 6.5 per cent, thus maintaining the status quo for the fifth straight time.
The repo rate is the rate of interest at which RBI lends to other banks.
"We expect the RBI to continue pause stance in upcoming policy. Strong US non-farm payroll data and wages seem to have pushed back on market expectations for a quick pivot to rate cuts," said the research report Ecowrap as a prelude before the three-day RBI meeting that starts Tuesday.
The reports said that the first repo rate rate cut could be on the table from June 2024. "Aug'24 looks the best bet now...," it said.
The RBI typically conducts six bimonthly meetings in a financial year, where it deliberates interest rates, money supply, inflation outlook, and various macroeconomic indicators.
A relative decline in inflation, barring the latest spike, and its potential for further decline may have prompted the central bank to put the brake on the key interest rate. Inflation has been a concern for many countries, including advanced economies, but India has largely managed to steer its inflation trajectory quite well.
Barring the latest pauses, the RBI raised the repo rate by 250 basis points cumulatively to 6.5 per cent since May 2022 in the fight against inflation. Raising interest rates is a monetary policy instrument that typically helps suppress demand in the economy, thereby helping the inflation rate decline.
The retail inflation in India though is in RBI's 2-6 per cent comfort level but is above the ideal 4 per cent scenario. In December, it was 5.69 per cent.
The US Federal Reserve in its January meeting voted to leave the key interest rate unchanged at 5.25-5.50 per cent, keeping the policy rate unchanged for the fourth straight time on a trot.
The US monetary policy committee in its statement said that the recent indicators suggested that economic activity has been expanding at a solid pace.
US Fed had raised interest rates from near zero to now 5.25-5.50 per cent in the fight against inflation, post-COVID.
US inflation in December was 3.4 per cent. US Federal Reserve's commitment has been to bring down consumer inflation to its target of 2 per cent.
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