New Delhi: With inflation inching up, experts feel that the Reserve Bank of India (RBI) is likely to maintain the status quo on key interest rates.
The six-member Monetary Policy Committee, headed by RBI Governor Shaktikanta Das, will hold the meeting from August 8 to 10.
Prof N R Bhanumurthy, Vice Chancellor, Dr BR Ambedkar School of Economics University, Bengaluru told PTI, "Though the consumer inflation is inching up mostly fuelled by food inflation, the demand for credit remains healthy I do not think the RBI will spoil the party. It will probably go in for a status quo on interest rates."
Bhanumurthy, formerly of the National Institute for Public Finance and Policy, a think tank funded by the Union finance ministry, said that he believed that the RBI would study the nature of inflation and its trajectory and take a call in the October monetary policy review.
"International factors lead me to believe that the CPI which may be around 5.5 per cent is impacted by a seasonal variation and if we cut that out it may come down to nearer 4-4.5 percent," the economist said.
Bandhan Bank's chief economist Siddhartha Sanyal said curiosity around the next MPC meeting has certainly increased.
"After a spell of rate hikes during the large part of the last financial year, the MPC maintained the status quo on rates in April and June. This pause was vindicated by softening of CPI inflation to below five per cent during the summer months," he said.
Since May 2022, RBI had hiked the short-term lending rate (repo) cumulatively by 250 basis points to check inflation, before hitting the pause button in April.
In the previous bi-monthly policy reviews in June, the benchmark rate was retained.
Of late, inflation has again inched higher and the key global central banks, such as Fed, have again embarked on raising rates reflecting concerns on the rate of price hikes, Sanyal said, adding that this backdrop has certainly led to a rise in the probability of future monetary tightening in the near term.
Recently, the US Federal Reserve increased interest rate by 25 basis points to 5.25-5.5 percent, taking it to a multi-year high.
The European Central Bank had also announced a new rate increase of a quarter percentage point, bringing its main rate to 3.75 percent.
"The MPC will keep its strong vigil on inflation and another hike in the coming months cannot be ruled out. My baseline expectation is that of a pause in August," he said.
India's Consumer Price Index looks set to hover below five per cent during the current quarter, and the bulk of the price rise would come from food prices, he said.
The country's retail inflation based on Consumer Price Index (CPI) rose to a three-month high of 4.81 per cent in June, mainly on account of hardening prices of food.
The inflation, however, remains within the RBI's comfort level of below 6 percent.
Also, the external sector balance improved materially in recent months and the rupee stayed resilient, Sanyal said.
"Overall, one expects the RBI to stay cautious and be emphatic in its strong vigil on inflation", he stated.
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