The MPC meeting commenced after India’s economic growth rate slowed to a seven-quarter low of 5.4 per cent in the second quarter of the current financial year
Reserve Bank of India (RBI) governor Shaktikanta Das will announce the final decision on the repo rate today after the two-day review meeting held by its six-member Monetary Policy Committee (MPC). This much-anticipated decision is scheduled to be announced at 10 am this morning.
The MPC meeting commenced after India’s economic growth rate slowed to a seven-quarter low of 5.4 per cent in the second quarter of the current financial year. Meanwhile, retail inflation in the country reached a 14-month high of 6.2 per cent in October, crossing RBI's tolerance band of 6 per cent. The spike was majorly driven by food inflation which reached a 15-month high of 10.9 per cent year-on-year.
The December MPC meeting under the chairmanship of Das will make a decision on the repo rate cut with the objective of bolstering sustainable economic growth and controlling inflation in the country.
Anticipation is touching the sky amid differences of opinion between the central ministers and the central bank regarding the repo rate cut.
As the country is facing slower economic growth, commerce and industry minister Piyush Goyal urged the RBI to cut the rate. He also said that considering food inflation to decide the repo rate is a flawed theory.
Echoing the same sentiment, finance minister Nirmala Sitharaman also called for an affordable bank borrowing rate, while attending a State Bank of India (SBI) event.
Meanwhile, RBI governor Shaktikanta Das has not signaled any immediate rate cut. He said that the Indian economy is sailing through smoothly due to a stable financial system.
Notably, The RBI has maintained the repo rate at 6.5 per cent since February 2023.
There is a mix of opinions among the experts as well. A segment of economists believe that the RBI will maintain a status quo on the interest rates until retail inflation cools down to RBI's tolerance band. However, another segment also disagree.
Paras Jasrai, senior economic analyst at the India Ratings and Research asserted that the growth slowdown is a concern but higher inflation is an even bigger concern. He also predicted that the MPC will likely side with the risk of higher inflation and maintain a status quo.
"Our firm view is that the RBI shouldn’t be constrained by food inflation for reducing interest rates. Food inflation is more due to supply issues rather than being demand-driven. Keeping a high interest rate regime is most unlikely to reduce food demand," said Chokkalingam G, founder of the Equinomics Research Private Limited.