RBI MPC Meeting scheduled between June 6-8; here is why RBI may keep CRR rate unchanged

Amid spiralling inflation, the Reserve Bank of India (RBI) is expected to continue with a rate hike in the monetary Panel Committee meeting scheduled to take place between June 6 to June 8.  

As per Reuters poll of economists, which expects the central bank to raise key policy rate by at least 100 basis points over the next four MPC meetings, the RBI was expected to follow up its unscheduled 40 basis point repo rate hike in May to 4.40% with another move at the policy meeting on June 8. 

The hint also came from Reserve Bank of India Governor Shaktikanta Das himself, who told media "it's a no brainer". " “I have already said that one of the reasons for the off-cycle meeting in May was that we did not want a much stronger action in June," he had said.  

A Reuters poll of economists expect the repo rate to reach its terminal level early next year. In the May 26-June 1 Reuters poll, it said following a surprise rate rise on May 4, several members of the Monetary Policy Committee were vouching for more in upcoming meetings this year to control sticky price pressures, which hit an eight-year high last month. 

Pankaj Pathak, Fund Manager-Fixed Income, Quantum AMC, expects that the RBI will hike the repo rate by another 35-40 basis points in the June meeting.  

"However, we will not be surprised if they prefer to go slow on rate hikes given the government is also responding to the inflation risks. The recent announcement on fuel tax cuts and reduction of import duties on edible oils will provide some comfort to the RBI," he said 

RBI’s surprise hike in Cash Reserve Ratio (CRR) rate at the start of the month has fuelled an expectation of a further hike in CRR rate in the June policy, said Pathak.  

"However, surplus liquidity in the banking system has fallen sharply in the last three weeks. Currently, the net excess liquidity parked under the RBI’s LAF window is close to Rs 3 trillion. We believe, the RBI will be comfortable with this level of liquidity at this juncture.  So, it may keep the CRR rate unchanged," underlined Quantum AMC Fund Manager.  

On bond market, the expert said it is is already positioned for frontloaded rate hikes.  

"The broader market expectation is that the RBI will hike by around 40-50 basis points in the June meeting. Any smaller rate hike will be a positive surprise and short term bond yields may soften marginally," he added.