RBI MPC meeting :Repo rate likely to stay unchanged

The Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) began its three-day policy meeting on Monday, with economists and market participants widely expecting the central bank to keep the benchmark repo rate unchanged while maintaining a cautious stance amid evolving inflation trends and global uncertainties.Analysts believe the RBI will continue to focus on balancing inflation and economic growth while closely monitoring domestic liquidity, monsoon progress, crude oil prices and global financial conditions before making any major policy move.
According to agency reports,Vinay Pai, Managing Director and Head of Fixed Income at Equirus Capital, said the central bank's policy decision is likely to be driven primarily by India's macroeconomic fundamentals rather than developments in global central banks.He noted that the US Federal Reserve's hawkish stance has pushed US Treasury yields higher, narrowing the yield differential between Indian and US bonds. Although the immediate impact on domestic bond markets has remained limited, sustained higher global yields could reduce foreign portfolio inflows into Indian debt and exert mild upward pressure on government bond yields.
According to Pai, the RBI is therefore expected to maintain a neutral and cautious policy approach while ensuring adequate rupee and foreign currency liquidity to keep financial markets stable.
Mandar Pitale, Head of Financial Markets at SBM Bank (India) Ltd., said the policy review comes against the backdrop of higher crude oil prices following the Iran conflict, which has increased inflationary risks, though they remain manageable at present.He added that the current growth-inflation dynamics do not warrant an immediate rate hike. However, the MPC is expected to issue cautious guidance, with global crude prices and monsoon developments remaining key factors for future policy decisions. Pitale cautioned that if crude oil prices remain in the USD 90-100 per barrel range for an extended period, inflationary pressures could strengthen the case for a rate hike later in the financial year.
Meanwhile,on similar lines, Maulik Patel, Head of Research at Equirus Securities, said the MPC is likely to leave policy rates unchanged in the August review.He observed that both wholesale and retail inflation have edged higher due to increased fuel prices, second-round inflationary effects and weather-related disruptions impacting food prices. Equirus Securities projects consumer price inflation (CPI) at 4.9 per cent for the current financial year, with upside risks.Patel also highlighted tightening monetary conditions in advanced economies, particularly indications from the US Federal Reserve of another possible rate hike this year, as an important factor for the RBI's future policy decisions.
Equirus Securities expects the RBI to consider a 25-basis-point rate hike during its December monetary policy review if inflationary pressures persist.According to the lastest market data, Brent crude was trading around USD 83.90 per barrel, while WTI crude was at approximately USD 80.15 per barrel.

(Business Correspondent)