Can RBI achieve its FY24 GDP target? Here’s what economists say

The rate-setting body of the Reserve Bank of India (RBI), also known as the Monetary Policy Body (MPC), hasn’t shocked anyone by maintaining its finger on the button, maintaining the policy repo rate at 6.5 percent, and maintaining its position of withdrawing accommodation from the market. This suggests that the RBI feels there is still an excessive amount of liquidity in the economy and that the central bank must continue to maintain a restrictive monetary policy in order to keep inflation under control.

In spite of this, a number of financial analysts predicted that the MPC would vote differently on the attitude, even if it didn’t move to neutral, since the inflation rate has been lowering. This was the case despite the fact that the inflation rate had been declining. “While the monetary policy committee might vote unanimously to keep rates unchanged, the decision to extend the stance could see a split as the doves would prefer to close the door on further tightening as inflation beats a retreat,” said Radhika Rao, an economist at DBS Bank, in a note dated June 5 that “while the committee might vote unanimously to keep rates unchanged, the decision to extend the stance could see a split.”

An economist from Deutsche Bank AG called Kaushik Das told Bloomberg that a neutral posture would signal that the RBI can hike, pause, or reduce interest rates at a later stage, depending on whether the data and transmission delays trigger a rise, stop, or reduction. “If the RBI maintains its neutral stance, it will signal that it retains the ability to raise, pause, or lower interest rates at a later stage.”

Why not simply maintain your neutrality?

At its meeting in April, the MPC agreed to put a hold on additional rate rises after having implemented a series of gradual hikes in the repo rate over the course of nearly an entire year. These rate increases took place virtually every month. Jayanth Varma, one of the most outspoken rate-setters in the organisation, expressed some scepticism about this topic, despite the fact that five other members of the organisation had decided to continue focusing on the withdrawal of housing. Varma voiced his concerns about the problem. Regarding it, there have been no developments. The same five members decided once again to keep focused on removing accommodation in order to guarantee that inflation progressively meets the goal while boosting growth. This decision was carried out by the Federal Open Market Committee. Varma once again expressed his concerns over this component of the resolution.

A shift in stance would have raised expectations of a pivot in the near future, but given the unpredictability of the impact that weather may have on food prices, it does not seem likely that there will be a rate cut anytime soon. The actions taken by central banks throughout the globe indicate vigilance on inflation as well as concerns for financial stability, according to Rao, who works for DBS Bank. This is a reaction to the decision made by the Australian meteorological office to raise the probability of an El Nino event happening.