RBI Monetary Policy Meeting Ahead – What You Can Expect

New Delhi – The Reserve Bank of India (RBI) is set to announce its bi-monthly monetary policy statement on August 8th-10th after a three-day meeting of its Monetary Policy Committee (MPC). The policy announcement will be closely watched by economists, investors and the general public for clues on the central bank’s stance on key economic issues.

Repo Rate

The repo rate, at which the RBI lends to banks, currently stands at 6.5%. Economists widely expect the rate to remain unchanged this time, as the RBI balances rising inflationary pressures with the need to support economic growth. The central bank has remained focused on withdrawing policy accommodation while ensuring adequate liquidity support to the economy.

Inflation Outlook

Retail inflation measured by the Consumer Price Index (CPI) accelerated to 4.81% in July, crossing the RBI’s target range for the sixth straight month. Supply constraints, high global commodity prices and strong demand conditions have contributed to the price rise. The RBI is expected to revise its inflation forecast upwards, while reiterating its commitment to bring it under control.

Liquidity Stance

The RBI has utilized various instruments like repo operations, CRR cuts and long term repo operations to ensure comfortable liquidity conditions in the banking system. It is expected to continue with its accommodative liquidity stance to support credit growth and productive economic activity. Any tweaks in liquidity management tools will be keenly watched.

Growth Outlook

India’s GDP grew by 6.1% in Q1 FY23, displaying resilience amid global headwinds. But some high frequency indicators like IIP and core sector data have been mixed. RBI may highlight both global and domestic growth risks, while emphasizing domestic economic fundamentals. Its growth projection for FY23 (currently at 6.1%) may be retained or marginally revised.

Policy Stance

RBI’s stance of ‘withdrawal of accommodation’ has been in place since May 2022. While a rate hike is unlikely, any change in stance from ‘neutral’ to ‘calibrated tightening’ could be premature given the uneven economic recovery. The MPC may prefer to wait for more data before signaling a definitive tightening cycle.

Overall, RBI is expected to continue on its path of gradual policy normalization amid conflicting priorities of addressing inflation and sustaining growth. Its commentary on liquidity management and evolving economic conditions will provide guidance on the future course of monetary policy.

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Disclaimer: Please note that the opinions and suggestions stated above are from individual market analysts and brokerage firms, and do not represent the stance of Oxgaps. We strongly encourage investors to consult with certified professionals before making any investment decisions.

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