Amid inflation concerns, RBI likely to leave interest rate unchanged

Mumbai, June 6

Reserve Bank Governor Shaktikanta Das will announce the next set of monetary policy on Friday morning amid expectations of a status quo on the benchmark interest rates.

The RBI has been holding the key interest rate (repo) at 6.5 per cent since February 2023. Experts are of the opinion that the RBI will maintain the status quo on interest rates as inflation remains a matter of concern, though the European Central Bank and Bank of Canada have started reducing their respective key rates.

Rate cut expected in Q3: SBI Research

• According to an SBI research paper, Prelude to MPC Meeting, the RBI is likely to cut the repo rate in the third quarter of the current fiscal and “such rate cut cycle is likely to be shallow”.
• It said CPI-based retail inflation is expected to remain close to 5% in May & decline thereafter to 3% in July.
• Inflation is expected to stay below 5% beginning October till the end of 2024-25, it added.

Das will announce the decision at 10 am after deliberations of the RBI’s rate-setting panel — Monetary Policy Committee (MPC) — which started discussions on Wednesday. The MPC may also refrain from rate cuts as economic growth is picking up, notwithstanding the elevated repo rate of 6.5 per cent prevailing since February 2023, experts said.

According to an SBI research paper, the central bank needs to continue the current stance of withdrawal of accommodation. The report titled ‘Prelude to MPC Meeting’ expects the RBI to cut the repo rate in the third quarter of the current fiscal and “such rate cut cycle is likely to be shallow”.

It also said CPI-based retail inflation is expected to remain close to 5 per cent in May (data to be released later this month) and decline thereafter to 3 per cent in July. Inflation is expected to stay below 5 per cent beginning October till the end of 2024-25, it added.

Ashish Agarwal, Director, AU Real Estate, opined that keeping the repo rate unchanged would ensure affordability for potential homebuyers, sustaining momentum in the housing market.

The government has mandated the Reserve Bank to ensure retail inflation at 4 per cent, with a margin of 2 per cent on either side. Retail inflation was 4.83 per cent in April this year.