RBI might keep interest rates unchanged in October: Here's why
The Reserve Bank of India (RBI) is likely to maintain the status quo on policy rates for the fourth consecutive time at its bi-monthly monetary policy review meeting which is scheduled for October 4-6, 2023. This decision comes amid high retail inflation and global factors such as elevated crude oil prices. The Monetary Policy Committee (MPC) is expected to hold its position as inflation remains high and liquidity tight.
MPC is a RBI Governor-headed six-member committee
The MPC is made up of three external members and three RBI officials. Shashanka Bhide, Ashima Goyal, and Jayanth R Varma are the panel's external representatives. The RBI officials include Governor Shaktikanta Das, Rajiv Ranjan (Executive Director) and Michael Debabrata Patra (Deputy Governor).
RBI projects inflation CPI inflation at 5.4% for 2023-24
When determining its bi-monthly monetary policy, RBI takes the CPI-based inflation into account. The bank has maintained the repo rate at 6.5% since it was raised from 6.25% in February. The benchmark rate was later maintained in bi-monthly policy reviews in April, June, and August. RBI forecasts CPI inflation at 5.4% for 2023-2024, with Q2 at 6.2%, Q3 at 5.7%, and Q4 at 5.2%. The projected CPI inflation rate for Q1 2024-25 is 5.2%.
Retail inflation eased a bit but still exceeds comfort zone
CPI-based retail inflation eased slightly to 6.83% in August from 7.44% in July, but it is still higher than the RBI's comfort level of 6%. RBI has been ordered by the government to keep inflation at 4% with a 2% margin on either side. As retail inflation continues to remain high and the US Federal Reserve has decided to maintain a hawkish stance for some more time, RBI is likely to maintain the status quo on policy rates.
