Takeaway from RBI’s MPC meeting could be more than a rise in the repo rate


Economic experts expect the MPC to raise the repo rate by 25-35 basis points (bps), while lobby group ASSOCHAM is also urging the central bank to do the same.

Furthermore, it will also be interesting to see if there will be unanimity among the members of the MPC on the decisions taken at the next meeting.

After the MPC meeting, RBI Governor Shaktikanta Das is expected to share what the bank has written to the central government on the reasons why inflation is not under control and steps being taken to manage it.

The MPC had met on November 3 to discuss what it would tell the central government about why it was unable to contain inflation.

According to Section 45ZN of the RBI Act, if the central bank fails to meet the inflation target, the central bank will send a report to the central government listing: the reasons for the failure to meet the inflation target; corrective actions proposed by it; and an estimate of the timeframe over which the inflation target will be achieved following the timely implementation of proposed corrective measures.

The minutes of said MPC meeting have not been made public, although the law provides otherwise.

Pursuant to section 45ZK, after each MPC meeting, the RBI publishes the resolution passed by the said committee.

Further, according to section 45ZL of the RBI Act, the minutes of the MPC meeting must be published on the 14th day after each meeting, including: the resolution passed at the meeting of the MPC; the vote of each member of the MPC, attributed to that member, on resolutions passed at said meeting; and the statement of each member of the MPC under subsection (11) of section 45ZL on the resolutions passed at said meeting.

In terms of unanimity among MPC members, Dr Ashima Goyal voted against the resolution to raise the repo rate by 50 basis points to 5.90 percent at the MPC meeting in September.

Goyal was in favor of a 35 basis point increase and explained his reasons for voting against the resolution.

However, the resolution passed with a 5:1 majority.

In India, retail inflation rose to 7.41 percent in September.

At the same meeting, another member, Prof. Jayanth R. Varma, voted against the second part of the resolution on the withdrawal of accommodation to ensure inflation remains within target.

Varma said the MPC should now pause rather than focus on further tightening.

As for the upward revision, he favored an upward revision of 60 basis points instead of the proposed 50 basis points.

Since the difference between the two was only marginal, Varma voted in favour.

Be that as it may, the expectation from the MPC meeting is that the repo rate hike will be moderate and will be in the range of 25 to 35 basis points.

The RBI raised the repo rate by 190 basis points from four percent to 5.90 percent. Now, MPC will take into account gross domestic product (GDP) growth estimates, food grain production estimates, inflation projection, global economic activity and other factors.

“The RBI will present monetary policy against the backdrop of slowing GDP growth and inflation above six percent,” said Madan Sabnavis, chief economist. Bank of Baroda (NS:) said.

According to him, the MPC will continue with rate hikes this time, although the magnitude will be lower – probably 25-35 basis points.

“Specifically, we believe the closing repo rate for the year will be 6.5 percent, meaning there will be another rate hike in February. This view is unlikely to change and the withdrawal of liquidity will continue.” he added.

“We expect a rate hike of 35 basis points at the upcoming meeting. Consumer price index (CPI) inflation is likely to moderate further in the coming months and fall below six percent by the end of the fiscal year,” said Rajani Sinha, chief economist. , CARE Ratings (NS:) told IANS.

She also indicates that the Wholesale Price Index (WPI) has fallen sharply from 16 percent in May/June to about 8 percent.

“The fall in global commodity prices comes as a great relief. However, the concern is that core inflation in India is still high above six percent. Food inflation and especially grain inflation is also high,” said Sinha.

This, in turn, will put upward pressure on household inflation expectations, which are already at a high of around 10 percent. So while there is some delay on inflation, RBI would remain vigilant, she added.

In terms of growth, high-frequency economic indicators such as car sales, GST collection, e-way bill and PMI continue to point to a healthy recovery. However, some consumption indicators, such as IIP consumer discretionary and nondurables, remain weak, Sinha said.

In addition, foreign demand is weakening as the global economy slows, Sinha said.

According to K. Joseph Thomas, Head of Research, Emkay Wealth, the trajectory of domestic inflation is paramount when it comes to interest rates.

“Price level pressures appear to be easing, but the comfort to be derived from fuel prices is far from real. Upside risks in fuel prices remain a concern,” he said.

(Venkatachari Jagannathan can be reached at v.jagannathan@ians.in)


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