Monday saw the Indian stock indices trading on a positive note to extend gains from the previous week based on expectations that the Reserve Bank of India (RBI) will continue to keep the repo rate unchanged in its upcoming monetary policy review meeting to be held later this week.
The benchmark indices Sensex and the Nifty were trading in the range of 0.4 to 0.5 per cent at the time of filing this report.
A consistent decline in inflation which is at 18-month low currently and its potential for further decline may prompt the central bank to put the brake on the rate again. The substantial decline in the inflation numbers in India can be attributed to the RBI’s consistent tightening of the monetary policy since mid-2022.
It may be noted that a three-day-long meeting by the monetary policy committee headed by the governor of RBI Shaktikanta Das will be held with the decision to be announced on June 8. The repo rate had been paused by the RBI in its meeting in April.
Meanwhile, SBI Research said that it expected the RBI to again pause the repo rate in the June policy meet. “We believe at 6.50 per cent, we are in for a prolonged pause....” it noted.
The RBI had raised the repo rate by 250 basis points cumulatively to 6.5 per cent since May 2022 barring the April pause in its fight against inflation. Raising the interest rates is a monetary policy instrument that helps to suppress demand in the economy, thereby helping the inflation rate decline.
