RBI's MPC meet to conclude today amid expectations of status quo on interest rate

Mumbai, Dec 08 : The RBI's high-powered rate setting panel on December 6 began its 3-day brainstorming on the next set of bi-monthly monetary policy amid expectation of continued pause on the short-term key lending rate as GDP growth is gaining momentum, and inflation manageable. The meerting concludes today.

RBI left the benchmark policy rate (repo) unchanged in its past four bi-monthly monetary policies. It had last increased the repo rate in February to 6.5 per cent, thus ending the interest rate hike cycle which began in May 2022 in the aftermath of Russia-Ukraine war and subsequent disruptions in the global supply chain resulting in high inflation in the country.

RBI Governor Shaktikanta Das would unveil the decision of the six-member MPC (Monetary Policy Committee) today.

As the Reserve Bank of India (RBI) is expected to maintain a cautious and potentially hawkish stance in the current financial year, impacting both home loans and personal loans (PL), it underscores a prudent approach to managing inflationary pressures. While this caution may pose challenges in the short term, it's crucial to recognize that the RBI's commitment to keeping interest rates unchanged provides stability to the entire lending landscape, instilling confidence among borrowers.

Kaushik Mehta, Founder & CEO of RUloans Distribution Services. says, “This approach, though more evident in its impact on personal loans, is considered a temporary measure. Looking ahead to the next financial year, there is optimism that the RBI's measures will contribute to a more favorable lending environment, with expectations of home loans outpacing personal loans.”

The central bank's dedication to economic stability, reflected in its reluctance to change rates, signals a steady trajectory. As borrowers navigate through this period, the stability in interest rates has positive implications for both home loans and personal loans, fostering an environment conducive to well-informed financial decisions, particularly with the housing sector anticipated to experience robust growth, he said.

On expectations from the MPC, Aditi Nayar, Chief Economist at ICRA said with the GDP data for the second quarter of 2023-24 appreciably higher than the MPC's last forecast, and continuing concerns on various aspects of food inflation, "We expect the MPC to pause in its December 2023 review, amidst a fairly hawkish tone of the policy document."

According to Deutsche Bank Research, RBI will likely increase 2023-24 GDP forecast to 6.8 per cent year-on-year, from 6.5 per cent earlier, while holding the CPI forecast unchanged at 5.4 per cent.

"RBI will likely keep repo rate and stance unchanged, persist with tight liquidity and ensure that short-term rates remain around 6.85-6.90 per cent, resulting in an 'effective rate hike'," it said.

India retained the tag of the world's fastest-growing major economy, with its GDP expanding by a faster-than-expected rate of 7.6 per cent in the September quarter on booster shots from government spending and manufacturing.

The external members on the panel are Shashanka Bhide, Ashima Goyal, and Jayanth R Varma. Besides Governor Das, the other RBI officials in MPC are Rajiv Ranjan (Executive Director) and Michael Debabrata Patra (Deputy Governor).