Expert Opinions on the RBI Monetary Policy Meeting: Will Interest Rates Remain Unchanged?

Introduction:

The Reserve Bank of India (RBI) is set to convene its three-day Monetary Policy Committee (MPC) meeting on December 6, with the outcome expected to be announced on December 8. This article presents insights from five experts regarding the possible outcome of the meeting in terms of interest rates and policy stance.

Expert Opinions

1. Rahul Bajoria, MD & Head of EM Asia (ex-China) Economics, Barclays:
   Bajoria believes that with strong growth momentum and declining core inflation, the RBI’s policy options are expanding. However, he expects the central bank to be cautious and take macroprudential measures to control lending, while addressing supply shocks and potential inflationary effects. Bajoria anticipates that the MPC will maintain a cautious hold and keep the repo rate unchanged at 6.5 per cent. He also suggests that the RBI may revise its annual growth forecast slightly higher, but keep inflation forecasts unchanged due to uncertainties surrounding food and energy prices.
2. Prasenjit Basu, Chief Economist, ICICI Securities:
   Basu predicts that given the moderation in CPI inflation to 4.87 percent and core CPI inflation to 4.5 percent, the RBI is likely to maintain the policy repo rate at its current level. He suggests that the easing inflationary pressure will prompt the MPC to adopt a neutral policy stance instead of the previous “withdrawal of accommodation” stance.
3. Parijat Agrawal, Head – Fixed Income, Union Asset Management Company:
   Agrawal highlights an improved domestic macro environment and favorable external factors as India heads into the policy meeting. With Q2FY24 GDP exceeding expectations, he expects the RBI to revise growth projections upwards for the full year. Agrawal notes that concerns over oil prices have reduced, and although the MPC will prioritize achieving the 4 percent inflation target, he anticipates that rates and the policy stance will remain unchanged. Market participants, however, will be keen to receive guidance on systemic liquidity, open market operations, and updates on the retail/unsecured credit environment.
4. Ranen Banerjee, Partner, Economic Advisory Services, PwC India:
   Banerjee observes that inflation and growth indicators have changed since the last MPC meeting. While inflation has moderated, it is still above the targeted 4 percent, albeit within the acceptable range. The surprising factor has been the Q2 GDP growth, which exceeded expectations. Banerjee suggests that the MPC will take comfort from the growth numbers, leading to the continuation of the current policy stance. However, if Q3 GDP shows further strength and core inflation reaches 4 percent, he does not rule out the possibility of a rate cut in late Q4 of FY23-24 or early Q1 of FY24-25, considering the upcoming national elections and signals from the US Federal Reserve about potential rate cuts.
5. Shanti Ekambaram, Whole-Time Director at Kotak Mahindra Bank:
   Ekambaram predicts that the RBI will maintain key interest rates during the December monetary policy review, prioritizing the containment of inflation, which has shown positive trends in recent months. With GDP growth at 7.6 percent in Q2, surpassing expectations, the central bank will focus on inflation, liquidity, and currency management. Considering the global economic landscape and geopolitical factors, Ekambaram expects the RBI to keep its rates and stance unchanged.

Conclusion

In conclusion, experts have varying opinions regarding the RBI’s upcoming Monetary Policy Committee meeting. While some anticipate unchanged interest rates and a cautious policy stance, others suggest the possibility of a rate cut in the future if certain economic indicators align favorably. The final outcome will be revealed on December 8, after careful deliberations by the MPC.

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