RBI MPC August meeting: The Monetary Policy Committee meeting conducted by the Reserve Bank of India commenced its three-day session on Tuesday to deliberate on interest rates and assess the current state of the economy. The six-member MPC, composed of three central bank officials and three external members, is responsible for determining India’s benchmark interest rate. The announcement of the repo rate directly affects borrowing expenses for banks and indirectly influences the interest rates on loans for both businesses and individuals. RBI Governor Shaktikanta Das is scheduled to disclose the committee’s decision on the interest rate at 10 am on August 8.
Also Read– HDFC Bank announces new reward points limits for credit cards from September 1st. Details here
This August session marks the third meeting since the inception of the new financial year on April 1. The first meeting took place from April 3-5, followed by the second meeting conducted on June 5-7. This is the fourth meeting of 2024, following the February Policy meeting held from February 6-8. The MPC consistently convenes for a duration of 3 days before unveiling its verdict at the conclusion of this 3-day period. The next RBI MPC meeting is scheduled on October 7-9.
Most economists, the central bank is expected to keep its repo rate unchanged at 6.50 per cent after its deliberations, continuing its stance of ‘withdrawal of accommodation’.
Also Read : ICICI Bank hikes FD interest rates by up to 5 bps; offers highest interest fixed deposit rate of 7.8%
“From the June MPC to now, the biggest change in the global setup is the start of the rate cutting cycle by the AEs. ECB and BoE have already reduced rates by 25-bps while the Fed has signaled a September start. We do not expect the RBI to follow at the upcoming August meeting – both with respect to rates and stance. Even as inflation can to fall to ~4% in Q2FY25, it is expected to move back to 4.9% and 4.6% in Q3FY25 and Q4FY25, respectively. The RBI has repeatedly signaled its intention of moving to the 4% target on a durable basis and hence is likely to wait till this is attained. We continue to expect the RBI to remain on an extended pause till it attains confidence on the inflation trajectory,” YES Bank economists said in a note.
The central bank has maintained the repo rate at 6.5% since February 2023. In June this year, the RBI Governor decided to keep the benchmark repo rate steady at 6.5% for the eighth consecutive time. The central bank had previously raised the policy repo rate six times in a row between May 2022 and February 2023, increasing it from 4% in May 2022 to the current 6.5%. The most recent adjustment took place in February 2023 when it was raised from 6.25% to 6.5%.
Also Read : Bank locker rules: Permitted and prohibited items, bank responsibilities, and locker operations
The YES Bank in its note said:
1. Global scenario: A pivot in the global monetary policy is confirmed with the ECB and BoE cutting the rates by 25-bps. Alongside, the Fed Chair in the last meeting said, “if inflation is moving in line with expectations, reasonably strong growth and labor market remaining at current levels”, then interest rates can be reduced as soon as September.
“Inflation in the US is showing signs of moderation with June PCE and core PCE at 2.6% YoY. Further, labor market data came in much weaker than expected adding only 114k jobs in July 2024 vs 179k in June 2024 while unemployment rate inched up to 4.3% and average hourly earnings was lower at 3.8%. The downward trend in the wage growth would come as a relief for the Fed as it would help arrest the fear of wage push inflation. Importantly, nominal wage growth should remain in the range of 3.5%-4.0% to keep inflation at 2% target level. With these developments, the market is assigning 90% probability for a 50-bps rate cut in Fed’s September meeting (we expect a 25-bps rate cut),” the bank noted.
2. Domestic inflation and food prices: The bank further noted that food prices (specifically vegetables) had been a major risk to India’s inflation trajectory. In June 2024, CPI inflation higher to 5.1% with food inflation at 9.4% (highest in the last 10-months). The pick-up in food inflation was majorly driven by vegetable prices that grew by 14.2%. Even though, there is some moderation in vegetable prices, the pressure continues with the NHB data reporting a 17.5% MoM increase in July 2024 vs 24.7% MoM in June 2024.
“The RBI governor has consistently spoken about the fact that inflation is facing resistance from food inflation. Though monsoon has recovered to 6.6% of the LPA, the spatial and temporal distribution remains a concern. Alongside, various states have reported significant crop damage on account of heavy rainsand floods. Thus, The RBI would prefer to wait for incoming data/information to have a better grip on the food inflation projections going forward,” the bank stated.
Also Read : ICICI Bank hikes FD interest rates by up to 5 bps; offers highest interest fixed deposit rate of 7.8%
3. Headline CPI inflation: “Markets are pricing in a 50bps cut by the Fed at the September policy after extremely poor private payroll data last Friday. For the RBI, we do not think there is compulsion to follow the Fed. As per Yes Bank’s estimates, Headline CPI inflation is likely to rise back to 4.6% in Q4FY25, thereby still not providing RBI the comfort of a sustained achievement of the 4% target. Further, recent INR depreciation could be a reason why a rate cut can be pushed out. The election-related uncertainties in the US, its impact on global supplies chain etc. is also a factor that could be in consideration for any EM central banker,” the bank noted.
For more news like this visit Officenewz.com
