The Reserve Bank may keep policy rates unchanged for the third time in its December monetary review. Experts have expressed this view. Experts say the monetary policy committee (MPC) will probably not change interest rates again because of the rise in retail inflation.
Retail inflation is currently above the Reserve Bank’s satisfactory level. However, the Gross Domestic Product (GDP) growth rate in the second quarter of the current financial year ended in September was negative, which may cause the central bank to soften its monetary stance. Beyond this, interest rates can be cut if necessary. The two-day meeting of the six-member Finance Policy Committee, headed by Reserve Bank Governor Shaktikanta Das, is set to begin from December 2. The results of the meeting will be announced on December 4.
At the last meeting of the MPC in October, policy rates were not changed. Inflation increases have crossed six percent in recent days. The Reserve Bank estimates that the country’s economy will fall 9.5 percent in the current fiscal year. The central bank has cut repo rates by 1.15 per cent since February this year. Inflation remains stable at more than four per cent of the Reserve Bank’s medium term, said Shanti Ekambaram, President-Consumer Banking of Kotak Mahindra Bank Group. As such, the scope of interest rate cuts in the upcoming monetary review is limited. However, there has been an encouraging improvement in consumer demand due to the festival by Tue. Crisil chief economist Dharmakirti Joshi said the Reserve Bank would keep interest rates unchanged in the policy review. Madan Sabnavis, chief economist at Care Ratings, expressed a similar view, saying inflation is still high. In such a scenario, the Reserve Bank has no choice but to keep policy rates unchanged. In addition, the possibility of cutting interest rates in the current fiscal year is often exhausted. “Consumer price index-based inflation is now very high,” said Govind Rao, chief financial adviser at Brickwork Ratings. In such a situation, the MPC is unlikely to change interest rates. The real estate advisory is based on low interest rates, said Anuj Puri, president of real estate consultancy Enerrac. In such a situation, we want the repo rate to be cut.
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