RBI MPC June 2023: The Reserve Bank’s rate-setting monetary policy panel began deliberations on Tuesday (June 6) amid expectations that the central bank will keep the benchmark interest rates unchanged at 6.5% on the back of easing retail inflation and the need to push economic growth.
After the last MPC meeting in April, the RBI paused its rate hike cycle and stayed with the 6.5% repo rate. Prior to that the central bank had cumulatively hiked the repo rate by 250 basis points since May 2022 in a bid to contain inflation.
Headed by Reserve Bank Governor Shaktikanta Das, the six-member Monetary Policy Committee (MPC) is meeting for three days and the decision would be announced on Thursday, June 8.
Several industry experts feel that this is the right time for the central bank to pause rate hikes.
Parag Sharma, whole-time director and chief financial officer, Shriram Finance, said, “With the customer inflation level at 4.7%, well below RBI’s upper tolerance limit of 6%, the conditions seem favourable for a pause in rate hikes.”
The latest GDP forecasts also point towards inflation becoming less of a concern. Sharma expects RBI to hit the pause button on the policy rate hikes, for the second time running.
However, Sharma also highlighted that accurately forecasting the potential impact of El Nino on the economy has become the primary concern.
“Considering our economy’s heavy dependence on farmers and small businesses, we feel that the Government would do well to take steps to mitigate the adverse effects of El Nino,” Sharma underlined.
Dhruv Agarwala, group CEO, Housing.com, Proptiger.com and Makaan.com also opined that RBI is expected to keep its benchmark lending rate unchanged, reflecting the easing concerns surrounding inflation.
While some voices advocate for a rate cut to provide an impetus to growth, the RBI is likely to exercise caution and wait before contemplating such a step, he added.
Shishir Baijal, chairman and MD, Knight Frank India, also expects the RBI to keep the repo rate unchanged at 6.5%, continuing with a pause, as inflation, supported by statistical base, has moderated, and will likely remain so.
This provides enough support for the RBI to keep its key policy rate unchanged.
In terms of real estate, Baijal said the implication of the rate hike on home loan demand has been minimal so far. Residential demand has remained upbeat indicating strong consumer preference towards home ownership despite high interest rate and inflation over the last one year.
“However, with economic growth facing headwinds from global slowdown, and the full impact of the high interest rates yet to be seen, we remain cautious of the impact on the housing market.”
Vimal Nadar, head of research at Colliers India, said, “At 7.2% for FY 2022-23, India’s GDP has outperformed the market expectations and is a testament to the promising trajectory of the economy amidst global challenges. The Indian economy continues to be resilient, with GDP growth pegged at 6.5% for 2023-24, aided by strong domestic demand and scaling up of capital investment.”
Nadar added a stable repo rate will avert the streak of rising home loan interest rates and will aid fence sitters and prospective homebuyers to expedite homebuying decisions.
Jyoti Prakash Gadia, MD, Resurgent India also feels that the growth rate of the Indian economy is encouraging, well above the global rates, and inflation is also indicating a moderating trend.
However, the pressure on food prices and adverse impact on the economy due to uncertainties about monsoon as well as prolonged geo-political tensions are expected to prompt RBI to adopt a wait-and-watch approach thereby maintaining the repo rate at the existing level, Gadia said.
The full impact of the 250 basis points increase in repo rate undertaken by RBI since May 2022 is still panning out in relation to the growth versus inflation matrix, and any change in the policy rate may require some further examination of the emerging economic parameters, before taking a final view on either increasing or decreasing the repo rate, Gadia added.
Meanwhile, the MPC is meeting in the backdrop of consumer price-based (CPI) inflation declining to an 18-month low of 4.7% in April. The Reserve Bank governor recently indicated that the May print would be lower than the April numbers. The CPI for May is scheduled to be announced on June 12.
Moreover, the government has mandated the RBI to ensure CPI inflation at 4% with a margin of 2% on either side.
The other members of the MPC include Shashanka Bhide (Honorary Senior Advisor, National Council of Applied Economic Research, Delhi); Ashima Goyal (Emeritus Professor, Indira Gandhi Institute of Development Research, Mumbai); Jayanth R Varma (Professor, Indian Institute of Management, Ahmedabad); Rajiv Ranjan (Executive Director, RBI); and Michael Debabrata Patra (Deputy Governor, RBI).
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