Next RBI MPC Meeting Date: The Monetary Policy Committee (MPC) meeting of the Reserve Bank of India (RBI) commenced Monday (February 6). 

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The three-day deliberations of the rate setting panel will conclude with the Central Bank's announcement  on Wednesday (February 8). 

Will RBI  pause on policy rate hike or increase it by 25 basis points to 6.50 per cent?

With the retail inflation down, if the Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) pause on the policy rate hike or increase it by 25 basis points to 6.50 per cent will be known on February 8. Inflation has come down substantially over the last three months and showing further downward momentum. External conditions have also eased with slower rate hikes in the US.

The RBI's foreign exchange reserves have also increased over the last few months. All these developments should provide comfort to the RBI.

External factors guided RBI's decisions

The US Fed has moderated the pace of increase in its benchmark interest rate. In its December monetary policy review, the central bank had raised the key benchmark interest rate (repo) by 35 basis points (bps) after delivering three back-to-back increases of 50 bps. Since May last year, the Reserve Bank has increased the short-term lending rate by 225 basis points to contain inflation, mostly driven by external factors, especially global supply chain disruption following the Russia-Ukraine war outbreak.

RBI MPC Meeting  - What industry leaders say

Kotak Institutional Equities in a report said the global inflation environment is gradually turning benign although inflation is still well above every central bank's target. Inflation will likely moderate further in the next few months, leading to the end of the rate hiking cycle by first half of 2023 and possible rate cuts in late-2023/early-2024. "However, given large global uncertainties, central banks' levers for supporting growth through monetary easing remain limited, thereby risking higher rates for an extended period.

"We expect the RBI MPC to hike policy rate by 25 bps to 6.5 per cent, followed by a prolonged wait-and-watch approach, as it assesses the lagged impact of monetary tightening on growth and inflation," it said.

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Amita Vaidya, Director, Sarla Anil Modi School of Economics, NMIMS Mumbai too said the monetary policy committee may ease its monetary tightening stance. "However, the downside of global economic outlook continues. Domestic economy is showing an uptick and resilience. Food inflation continues to have increased pressure from high cereal prices. Thus RBI may remain focused on withdrawal of accommodation and raise the policy rate by 25 basis points," she said.

On the other hand, Ranen Banerjee, Partner and Leader, Economic Advisory Services at PwC India said with the US Fed bringing down the quantum of increase to 25 bps, CPI within the tolerance range of RBI, yield differentials between US and India increasing to around 3.75 percentage points, sluggish exports and need to keep borrowing costs low for government and the private sector, the MPC does not have many reasons for a further rate hike.

"The only argument for a rate hike would be too early a pause may lead to de-anchoring of inflation expectations. On this front too, given our inflation is mostly demand-led and not supply-led, the arguments are weak. "We should therefore not be surprised if the majority in MPC actually goes for a pause or a token 10-15 bps repo rate increase from a signalling perspective," said.

(PTI Inputs) 

RBI likely to settle for 25 basis points repo rate hike, say Experts; Check RBI MPC Meeting Date 2023