The RBI’s high-powered rate setting panel, the Monetary Policy Committee (MPC), has started its 3-day meeting to discuss the next set of bi-monthly monetary policy. It is expected that the RBI will continue to maintain a pause on the short-term key lending rate, given the gaining momentum of GDP growth and manageable inflation. The repo rate has remained unchanged in the past four bi-monthly monetary policies, and it is anticipated that the MPC will keep it unchanged in this review as well.

Ever since the interest rate hike cycle began in May 2022, the RBI has gradually increased the repo rate to 6.5%. However, in February, it decided to end the interest rate hike cycle due to the Russia-Ukraine war and disruptions in the global supply chain, which resulted in high inflation in the country.

The decision of the MPC, consisting of six members, including the RBI Governor Shaktikanta Das, will be announced on December 8. Aditi Nayar, Chief Economist at ICRA, expects the MPC to pause in its December 2023 review, considering the higher GDP data for the second quarter of 2023-24 and continuing concerns about food inflation.

Deutsche Bank Research predicts that the RBI will revise the 2023-24 GDP forecast to 6.8% year-on-year and maintain the CPI forecast at 5.4%. They anticipate that the repo rate and stance will remain unchanged, resulting in an ‘effective rate hike’, as the RBI ensures tight liquidity and keeps short-term rates around 6.85-6.90%.

India has retained its position as the world’s fastest-growing major economy, with a GDP growth rate of 7.6% in the September quarter. The growth was fueled by government spending and manufacturing.

Sanjay Bhutani, Director of Medical Technology Association of India (MTaI), expects the MPC to keep the policy rate unchanged in the upcoming meeting. However, he suggests that there could be an easing of interest rates in the future, considering the downward trend in inflation. The government has mandated that retail inflation based on the Consumer Price Index (CPI) stays at 4%, with a margin of 2% on either side. In October, retail inflation decreased to a four-month low of 4.87% mainly due to cooling prices of food items.

H S Bhatia, Managing Director of Kelwon Electronics and Appliances, hopes for stable or slightly reduced interest rates in the upcoming review, as it would boost purchasing power for consumers. Parijat Agrawal, Head of Fixed Income at Union Asset Management Company, expects the MPC to remain on pause in terms of rates and stance, despite emphasizing the target of bringing inflation to 4%.

The MPC consists of three external members, Shashanka Bhide, Ashima Goyal, and Jayanth R Varma, and three RBI officials, Governor Das, Rajiv Ranjan (Executive Director), and Michael Debabrata Patra (Deputy Governor).