RBI Repo Rate Hike: After a few days, the new financial year (FY24) is about to begin and an important meeting of the Reserve Bank (RBI MPC Meeting April 2023) is going to be held in the first week of the new financial year. The Monetary Policy Committee of the Reserve Bank is holding this meeting to decide on the interest rates at a time when all the Central Banks are facing challenges. Several Central Banks, including the US Federal Reserve, are increasing interest rates, while there is a challenge of retail inflation on the domestic front. In such a situation, most experts believe that the Reserve Bank may decide to increase the Repo Rate Hike Forecast by 25 basis points i.e. 0.25 percent in the next meeting.
there will be a meeting next week
The first MPC meeting of the Reserve Bank of the financial year 2023-24 is starting from 03 April. The Monetary Policy Committee of RBI meets every two months to decide on interest rates. The results of this meeting will be revealed on 06 April. This meeting is taking place at a time when the rate of retail inflation is still above the Reserve Bank’s range of 06 per cent. The Reserve Bank takes into account retail inflation the most while deciding on interest rates. Apart from this, some domestic and external factors influence the decisions of the Central Bank.
These factors will have an effect
While deciding on the policy rates in the next monetary policy meeting, the committee will consider two important aspects. These include high inflation rates and recent measures taken by various central banks, especially the US Federal Reserve, the European Central Bank and the Bank of England.
Inflation is increasing concern
To control inflation, the Reserve Bank (RBI) is continuously increasing policy rates from May 2022. External factors such as the disruption in the global supply chain after the Russia-Ukraine war are believed to be the reason for the rise in inflation. Retail inflation, which remained below 6 percent in November and December 2022, has once again crossed the Reserve Bank’s target of 6 percent. Consumer Price Index based inflation (CPI inflation) had reached 6.52 per cent in the month of January, while it had reached 6.44 per cent in the month of February.
Right now the repo rate is
In the MPC meeting held in February, the Reserve Bank had increased the policy rates ie Repo Rate by 25 basis points. Due to this, the repo rate increased to 6.50 percent. From May 2022 till now, the rates have been increased by 2.50 percent.
RBI’s stance may change
Bank of Baroda Chief Economist Madan Sabnavis believes, “The retail inflation rate has been 6.5 per cent and 6.4 per cent in the last two months. The availability of cash is almost neutral now. We can expect the Reserve Bank to cut interest rates once May again hike by 25 basis points. Also, to signal that the rally in interest rates is over, it may change its stance to neutral.
Rates hike expected for the last time
Chief Economist of India Ratings and Research D.K. Pant is also expecting an increase of 25 basis points in the policy rate. They believe that this could be the last increase in interest rates in order to tighten monetary policy. Pant said inflation is showing a decline from here on due to the earlier hike in policy rates, softening global commodity prices and base effect.
Such may be the opinion of the MPC
On the other hand, Ranen Banerjee, partner (economic advisory services) of PwC India, says that inflation in India is high due to supply-side constraints. As in the last Monetary Committee meeting, two members opposed the increase in interest rates. Probably this time most of the members can vote in favor of stopping the increase in interest rates.
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