RBI MPC meeting begins today: Will repo rate be hiked?
What's the story
The Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) is holding a three-day policy meeting starting today. Analysts expect the central bank to keep the benchmark repo rate unchanged, considering domestic inflation trends and global uncertainties. Despite global challenges such as high crude oil prices and a hawkish US Federal Reserve, the RBI is not expected to rush into changing interest rates.
Policy direction
Domestic macroeconomic conditions to drive RBI's policy decisions
Vinay Pai, MD & Head of Fixed Income at Equirus Capital, said the RBI's policy decisions will be mainly driven by domestic macroeconomic conditions.
He stressed that these decisions won't be closely tracking global monetary policy.
The hawkish stance of the US Federal Reserve has pushed US Treasury yields higher, narrowing the yield differential between Indian and US bonds.
Policy stance
Pai warns of potential impact on debt inflows
Pai warned that persistently high global yields could temper foreign portfolio inflows into Indian debt and mildly pressure government bond yields upward.
He expects the RBI to maintain a neutral and cautious policy stance if global yields stay high and debt inflows weaken.
This is in line with Mandar Pitale, Head of Financial Markets at SBM Bank (India) Ltd. who said higher crude oil prices due to the Iran conflict have raised inflationary risks but are manageable for now.
Future considerations
Cautionary guidance expected from MPC
Pitale expects the MPC to provide cautionary guidance, with global oil prices and monsoon progress being key factors for future policy decisions.
He warned that if crude oil prices stay in the $90-100 per barrel range for a long time, inflationary pressures could rise.
This could strengthen the case for rate hikes in H2 of FY2027.
Rate forecast
Repo rate expected to remain unchanged for now
Maulik Patel, Head of Research at Equirus Securities, also expects the MPC to keep policy rates unchanged in August.
He noted an uptick in wholesale and retail inflation due to petrol and diesel pump price increases, second-order effects, and weather disturbances on food.
Patel estimates CPI for the full year at 4.9% owing to these pressures with upside risks.