The RBI is likely to keep the repo rate unchanged in August monetary policy review on elevated inflation risks and pending the closure of the FCNRB deposit scheme, according to a poll of 10 economists and treasury heads revealed.
Panel anticipated that the central bank will maintain its policy stance as neutral while adopting a hawkish tone amid inflating inflation risks from geopolitical tensions, elevated crude oil prices, and uneven monsoon.Analysts said the central bank would remain in a wait-and-watch mode as it assesses the evolving inflation outlook.
According to an chief economist at ICRA, trimmed core inflation remains benign and suggests a status quo is the best policy option for the time being, with caution being expressed through policy tone.
Governor Sanjay Malhotra, in a recent press interaction, reiterated that inflation will be the central bank’s foremost priority going ahead, pointing out that the progress of the monsoon is the key deciding factor.
The MPC is scheduled to meet between 3rd and 5th August to decide on the policy rates. The head bank has reduced the repo rate by 1.25% last year to aid growth. Despite the expectations of a pause in August, the majority of the respondents see the policy rate moving higher over the course of FY27.
Several analysts expect at least two rate hikes during the fiscal year if the inflationary pressure enterprise intensify. It is skeptical if the central bank’s inflation forecast would change, however with the recent spike in crude oil prices a revision innthe geopolitical tensions persist. Expectations on the growth predictions also remain divided. Some economists believe a resilient domestic demand could prompt a upward revision in FY27 GDP growth forecast, while others expect no change. While a few of them anticipate a slightly downgrade due to weak global demand, higher nervousness on geopolitical uncertainty.