Hyderabad: The Reserve Bank of India, which is holding its first Monetary Policy Committee (MPC) meeting in the current fiscal, is expected to keep its key repo rate unchanged at 6.50 per cent after the meeting on April 5. The recent uptick in crude oil prices over geopolitical conflicts is likely to keep the MPC's focus on inflation and managing the impact of global headwinds, despite record-high economic growth in the previous quarter.
The review by the six-member led by RBI Governor Shaktikanta Das will provide a forward course of action that the central bank will adopt in the new financial year as it seeks to strike a fine balance between sustainable growth and bringing inflation under four per cent.
CPI inflation has been above RBI’s 4 per cent target, but core inflation has been below 4 per cent for the last three months, with continued disinflation in the services sector. Food inflation at a high of 7.8 per cent, according to the latest February data remains a concern, with very high inflation for vegetables (30 per cent), pulses (19 per cent) and spices (14 per cent). As India heads into a general election this month, the economy is growing faster than expected amid signs prices are trending lower though food inflation remains a risk.
Dr VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services said “The MPC is unlikely to act on policy rates on April 5th. Even though rate cuts can be expected this year, the time is not yet conducive for a rate cut. The growth momentum in the economy is strong and FY 24 is likely to register GDP growth of 7.6%, much ahead of the initial estimates. India can achieve a growth rate of 7% in FY25. So, a rate cut is not warranted now.”
After a 25 bps hike in February 2023, the rate has remained unchanged at this level over seven straight MPC meetings. With the rise in crude oil prices and the USD INR recently touching its all-time high, it is unlikely that the RBI will change its stance to neutral. Brent crude oil prices touched a fresh over five-month high of $88.3 per barrel on Tuesday. This was a weekly rise of 3.3% and a monthly gain of 7.7%. Crude oil prices also advanced 1% on Tuesday morning, hitting $84.6, having risen 3.8% this week and 8.4% this month.
This was mainly due to escalating geopolitical tensions, especially in the Middle East, as well as speculation of falling Mexican oil supply in the near future. Oil markets are also still seeing the effects of the Organisation of the Petroleum Exporting Countries (OPEC+) committee extending voluntary cuts for the second quarter of the year last month.
It is expected that RBI will slightly soften its hawkish forward guidance, but remain cautious given the upside risk of food inflation. The Central bank of the country will also keep a close watch on the Federal Reserve’s stance on rate cuts before taking a decision. “The April 5th policy announcement is unlikely to impact the market, given the current market mood and resilience. The market is presently influenced by retail investor enthusiasm, the sustained flows into the market via mutual funds and fundamental support from good GDP growth and decent corporate earnings,” added Dr Vijayakumar.
