RBI MPC likely to maintain status quo, all eyes on repo rate

NEW DELHI: As the Reserve Bank of India (RBI) gears up to announce the decision of its Monetary Policy Committee (MPC) meeting on October 9, industry experts on Tuesday said the Central Bank is likely to maintain a status quo on policy interest rates and if food inflation further moderates, a shallow rate cut of 50 bps in the upcoming policy meetings is likely this fiscal.

Dhiraj Relli, MD and CEO, HDFC Securities said while they do not expect the RBI to start its rate cut cycle, the possibility of a change in stance to neutral is on the table.

“The MPC may keep the repo rates steady at 6.50 per cent for the 10th consecutive time. Although it remains a close call, the RBI could very well deliver a no change policy while only changing its tone towards the dovish side,” said Relli.

Despite inflation remaining below 4 per cent over the past two months, primarily due to a favourable base and some sequential slowdown in food prices, the risk to food inflation remains high.

“We anticipate that the MPC will maintain the current policy rate and stance. The commentaries from the newly inducted external members will be closely monitored to gauge future policy directions. Overall, we expect the governor to have a dovish tone, laying the groundwork for a shallow rate cut in the coming months,” said CareEdge Rating in its report on Tuesday.

As far as economic growth is concerned, overall growth continues to remain healthy. A revival of the private consumption demand along with early signs of a pickup in private investment bodes well for the overall economy.

On the expenditure front, the private consumption expenditure, as indicated by the Q1 GDP data, improved to 7.4 per cent from 4 per cent in Q4 FY24.

The investment situation has improved as well. Overall Investment GDP exhibited robust growth of 7.5 per cent, surpassing the previous quarter’s growth of 6.5 per cent.

“This growth, coupled with double-digit expansion in the construction sector, plausibly suggests increased capex by households and private sector. A recovery in the private consumption demand will support the private investments going forward,” the report mentioned.

According to Emkay Global Financial Services, a change in stance in the meeting is a possibility, which will be perceived as a communication tool by the market to create space for cuts ahead. But the RBI will still stress on being 'actively disinflationary', and be on wait-and-watch mode for assessing multiple macro forces.