Published 13:36 IST, February 6th 2024
RBI monetary policy: RBI to maintain rates, all eyes on Governor’s statement
Since May 2022, the RBI has raised its key rate by a total of 250 basis points to counter rising inflationary pressures.
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The Reserve Bank of India (RBI) is expected to keep key policy rates unchanged for the sixth consecutive meeting as it concludes discussions from February 6-8. However, market observers are closely scrutinising the central bank's statement for any indications of a shift in policy direction, given recent developments in core inflation and the government's fiscal prudence showcased in the budget.
Most economists polled between January 10 and February 1 by Reuters anticipate the RBI to maintain the repo rate at 6.50 per cent. Gaura Sen Gupta, an economist at IDFC First Bank, suggests that while inflation remains above the 4 per cent target and a rate cut is expected later in the year, it might be premature to alter the policy stance at this juncture.
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Since May 2022, the RBI has raised its key rate by a total of 250 basis points to counter rising inflationary pressures. However, it has refrained from further hikes since February 2023, as inflation showed signs of moderation but remained above the 4 per cent target.
Thamashi De Silva, Assistant India Economist at Capital Economics, opines that with the economy showing resilience and inflation staying elevated, the RBI is likely to remain cautious, especially given the upcoming national elections scheduled by May.
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Despite headline inflation hovering above the 4 per cent mark, there has been a steady decline in core inflation, fuelling hopes for a potential shift in policy stance towards neutrality.
Market participants are also awaiting possible liquidity interventions from the RBI, as the system deficit hit a record high in January. Neeraj Gambhir, Group Executive and Head of Treasury at Axis Bank, suggests that the government's adherence to fiscal consolidation in the budget could offer the RBI some leeway to adopt a slightly accommodative stance and enhance liquidity in the system.
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Vivek Kumar, an economist at QuantEco Research, notes that while the budget is viewed favourably, any immediate alterations to the growth-inflation trajectory are unlikely, thus underscoring the RBI's focus on achieving the 4 per cent inflation target.
(With Reuters inputs)
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13:36 IST, February 6th 2024