The RBI’s Monetary Policy Committee (MPC) is scheduled to meet during February 6-8, which will be the first in the year 2023. RBI Governor Shaktikanta Das will announce the MPC decision on February 8, the last date of the meeting. According to a Reuters’ poll, the RBI is expected to raise its key repo rate by a modest 25 basis points to 6.50 per cent at its meeting.
“Like many other major central banks, the RBI is expected to then pause, waiting for inflation to fall before considering a shift toward a stimulative stance as Asia’s third-largest economy slows,” according to a Reuters’ report.
Retail inflation declined to a one-year low of 5.72 per cent in December 2022, mainly due to softening prices of food items. The Consumer Price Index (CPI)-based inflation rate eased to 5.72 per cent in December. It was 5.88 per cent in November, and 6.77 per cent in October 2022.
After remaining above the Reserve Bank of India’s upper tolerance threshold of 6 per cent since January 2022, retail inflation declined in November to 5.88 per cent and further in December to 5.72 per cent — its lowest level in one year.
Sunil Sinha, principal economist at India Ratings & Research, said, “Going forward, the inflation trajectory is expected depend on a combination of – a) cereals prices, b) commodity prices and c) core inflation. Although the impact of monetary policy will gradually start reflecting in cooling down of retail inflation in the coming months and the same is expected to drop to about 5 per cent by 1QFY24, Ind-Ra still sees a strong possibility of 25 bp rate hike in February 2023 monetary policy committee review meeting. The terminal rate in present cycle is likely to be in the range of 6.50 – 6.75 per cent.”
However, Aditi Nayar, chief economist at ICRA, said, “Taking into account (December’s) lower-than-expected CPI inflation print, and the muted average IIP growth of 1.3 per cent during October-November 2022, we anticipate that the MPC may choose to pause in February 2023.”
In the last monetary policy review in December 2022, the RBI’s Monetary Policy Committee raised the repo rate by 35 basis points to 6.25 per cent. This was the fifth consecutive repo rate hike in 2022 alone. With that latest hike, the RBI’s rate-setting panel raised the key policy rate by 225 basis points in 2022 in total, in order to control inflation. The repo rate is the interest rate at which the RBI lends to the commercial bank.
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