The Reserve Bank of India (RBI) commenced its three-day bi-monthly monetary policy committee (MPC) meeting on Wednesday with the financial market participants monitoring the developments keenly.
The RBI generally holds six bi-monthly meetings in a financial year during which it discusses on interest rates, money supply, inflation outlook, and various macroeconomic indicators.
The Indian central bank is expected to yet again pause the key repo rate this week, according to SBI Research.
The report authored by Soumya Kanti Ghosh, Group Chief Economic Adviser read, "Domestically, we believe at 6.50 per cent, we are in for a prolonged pause as seasonality of inflation is tapering first..."
"We believe the (RBI's) stance should continue to be withdrawal of accommodation as inflation is unlikely to tread below 5 per cent in rest of 2023-24," the SBI Research report further said.
In its past three meetings in April, June and August, the RBI had kept the repo rate unchanged at 6.5 per cent. The repo rate is the interest rate at which RBI lends to other banks.
Meanwhile, rating agency Crisil also believed that the monetary policy committee would hold the policy rate in the October meeting again. For now, the consensus is that a 25 basis point rate cut in early 2024 is a conditional possibility, it published in a report in August titled 'RateView -CRISIL's outlook on near-term rates'.
Moreover, Informerics Ratings is also of the view that the RBI will keep repo rate unchanged for the fourth successive time.
With sticky retail inflation - breaching the MPC's upper threshold of 6 per cent and the US Fed's persisting hawkish stance, the RBI is likely to keep the repo rate unchanged for the fourth time.
A relative decline in inflation, barring the latest spike, and its potential for further decline may have prompted the central bank to put the brake on the key interest rate. Inflation has been a concern for many countries, including advanced economies, but India has managed to steer its inflation trajectory quite well.
Barring the latest third straight pause, the RBI raised the repo rate by 250 basis points cumulatively to 6.5 per cent since May 2022 in the fight against inflation. Raising interest rates is a monetary policy instrument that typically helps suppress demand in the economy, thereby helping the inflation rate decline.
Headline inflation in India rose to 7.8 per cent in July due to a surge in prices of food items like wheat, rice and vegetables, to later fall to 6.8 per cent in August.
After the August monetary policy meeting, the RBI upwardly revised the country's retail inflation projections for 2023-24 at 5.4 per cent, against the 5.1 per cent it projected in its previous monetary policy meeting in June.
A "substantial increase" in headline inflation would occur in the near term, RBI Governor Shaktikanta Das had said as part of his remarks after the policy meeting.
He reiterated what he said after the June meeting - "Bringing headline inflation within the tolerance band is not enough; we need to remain firmly focused on aligning inflation to the target of 4.0 per cent."
The outcome of the central bank's meeting will be announced on Friday morning.
