It is expected that the repo rate will remain unchanged for the fourth time in a row as the Reserve Bank of India is likely to keep its monetary policy rates and stances this week despite the elevated retail inflation and a hawkish US Federal Reserve. Economists expected that the repo rate may remain at 6.5 percent and the policy stance at the withdrawal of accommodation. Furthermore, many economists predicted that retail inflation would remain above the Reserve Bank of India’s target band even as core inflation continued to cool. The central bank is likely to keep a close eye on rising prices of crude oil and uneven monsoon rains. Go through this article till the end to learn what most economists predicted about the retail inflation and repo rate.
Will RBI Keep Repo Rate Same For the Fourth Time?
The chief economist at ICRA, Aditi Nayar asserted that Icra thinks inflation would persist at over 6 percent in two quarters to set the stage for a rate hike, amid the transmission of pressure to core inflation. Aditi Nayar kept on saying that they expect the monetary policy committee might hold the October policy amid a hazy outlook for food inflation and increased prices of crude oil. Chief economist at Icra said, “We expect the MPC (monetary policy committee) to remain on hold in the October policy while continuing to demonstrate caution amid a cloudy outlook for food inflation and elevated crude oil prices. In ICRA’s view, inflation would need to persist above 6% for at least two quarters, amid transmission of pressures to core inflation, to set the stage for a rate hike,”
The chief economist of Kotak Mahindra Bank, Upasna Bhardwaj said the liquidity deficit is likely to moderate due to some spending of the government and reversing the impact of ICRR. Bhardwaj further added, “We expect RBI to keep liquidity tight in the near term to keep short-term rates elevated, given the pressure on the rupee and underlying inflationary risks. We expect liquidity to normalize towards the surplus zone by early October amid the government’s month-end spending,”
Notably, the market is keenly following the steps of RBI on India’s inclusion in the global bond indices. JPMorgan on September 21, decided to include Inda in the GBI-EM Global series that is going to happen in June 2024. Reportedly, the inclusion of India would lead a capital inflow of $25 billion to lessen the liquidity deficit.