RBI-MPC to continue with repo rate

However there are differing views on whether RBI would change its stance to `neutral’ from ‘withdrawal of accommodation’.

The repo rate is the rate at which the RBI lends to the banks.

The MPC meeting began on Tuesday and it decision will be announced coming Thursday.

“Prior to the announcement of the budget it would have appeared to be a no-brainer that a status quo on both repo rate and stance would be agreed to as inflation remains elevated at 5.7 per cent as of December,” Madan Sabnavis, Chief Economist, Bank of Baroda said.

He said that this can improve in January but will definitely not give form comfort of inflation being under control as it is driven more by food inflation.

“Therefore there is a very high likelihood that the repo rate will remain unchanged again. In fact, going by the RBI forecasts on inflation for the next year, it can be seen that the number will remain above 5 per cent for Q1 of FY25 and come down to 4 per cent in Q2 only. After this period, it would increase to 4.7 per cent in Q3,” Sabnavis said.

He said that there is reason to believe that a rate cut can be considered only in Q2-FY25 after there are positive indicators on the inflation and monsoon fronts.

According to CARE Ratings, the overall economic outlook remains upbeat despite challenges in specific sectors. RBI is likely to revise its growth projections upward. While headline inflation is elevated, primarily due to rising food prices, core inflation remains relatively subdued.

The systemic liquidity has consistently remained in deficit since early December 2023, and money market conditions remain tight. The RBI will likely continue to support liquidity conditions through variable-rate repo auctions (VRR), potentially considering an extension in their tenor, CARE Ratings said.

“We expect the MPC to maintain the current interest rates during the forthcoming policy meeting,” the credit rating agency said.