RBI Monetary Policy June 2024: Industry Expects RBI to Maintain Repo Rate at 6.5%
Anuradha Mishra
Published: 6th Jun, 2024 at 2:05 PM
The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) is currently holding its second meeting for the fiscal year 2024-25 (FY25) from June 5-7, 2024. This six-member panel is tasked with deciding the RBI’s repo rate, among other significant financial policies.
The repo rate, the interest rate at which the RBI lends money to commercial banks, directly influences the borrowing costs for these banks and subsequently affects the interest rates they offer to businesses and individuals.
Focus Areas of MPC
The MPC meets at least four times annually to evaluate the prevailing economic conditions. During these meetings, key metrics such as inflation and growth figures are scrutinised to determine economic stability. One of the primary decisions revolves around the repo rate—whether to maintain it, increase it to curb inflation by making borrowing more expensive, or decrease it to stimulate economic growth by making borrowing cheaper. Post-meeting, the MPC releases a statement outlining its decisions.
Date and Time of RBI Monetary Policy June 2024
The meeting, which began on June 5, will conclude on June 7, 2024. The committee’s decisions will be announced on June 7. This three-day meeting will result in policy announcements affecting businesses and borrowers across various industries. As the second FY25 bi-monthly assembly, this meeting will chart the course for interest rates and economic policies for the upcoming year. Notably, this is the first MPC meeting following the general election results announced a few days ago, which led to a market crash of nearly 6%, erasing approximately Rs 30 lakh crore of investors’ wealth in a single day. A new government will take office soon.
Impact of MPC Decisions on the Economy
The MPC’s decisions significantly affect the economy in core areas such as:
– Inflation: The MPC adjusts the repo rate to keep inflation within a target range set by the Centre.
– Fiscal Growth:Low-interest rates stimulate borrowing and investment, thus promoting economic growth.
– Fiscal Stability: The MPC’s policies regulate liquidity and credit flow, influencing the stability of financial institutions.
Industry Stakeholders’ Expectations
Most industry experts anticipate that the RBI will maintain the repo rate at 6.5%, balancing inflation and economic growth.
“We expect the MPC to keep the policy rate unchanged at 6.5% and maintain its ‘Withdrawal of Accommodation’ stance. System liquidity is expected to ease with the formation of the new government, as spending resumes.
The headline CPI may remain sticky due to volatile food inflation. Any rate cut depends on CPI moving towards 4% on a durable basis and is also contingent on the US Federal Open Market Committee’s (FOMC) decision.
Fiscal consolidation, an upgrade of S&P’s Indian sovereign rating outlook to positive, and India’s inclusion in the JPM bond index from this June are positive for the bond markets,” says Parijat Agrawal, head of fixed income at Union Mutual Fund.
Mandar Pitale, head of treasury at SBM Bank India, expects the MPC to remain committed to the 4% CPI goal using appropriate monetary policy tools.
“In recent months, the RBI has actively managed banking system liquidity to calibrate monetary conditions despite stable policy rates. The resilience of GDP growth, backed by sustained momentum in domestic demand, allows deferring the start of the easing cycle, staying focused on inflation,” he explains.
Pitale also mentions a “fragile outlook for the global economy,” predicting that the MPC will maintain policy rates for the foreseeable future with a potential rate easing cycle beginning in the last quarter of FY25. “The favourable impact of monsoon on the food inflation trajectory will significantly influence the start of the easing cycle,” he adds.
Vikrant Mehta, head of fixed income at ITI Mutual Fund, notes, “Since the MPC’s last meeting, geopolitical volatility rose in the first half of April, although it seems to have subsided, underlying tensions persist.”
“Additionally, global markets now expect the US Fed to maintain its stance longer than anticipated compared to March,” he concludes.
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