RBI's MPC likely to keep repo rate steady, may revise GDP growth forecast: Key points

The RBI will announce its monetary policy outcome on December 8.

The Reserve Bank of India's Monetary Policy Committee (MPC) will come out with its decision on key interest rates on December 8 in what will be the last review before the budget (vote on account) is presented for the financial year 2024-25 .

Economists expect the MPC to maintain status quo at a time when concerns over high interest rates impacting economic growth have tapered with the second quarter GDP growth coming in at a robust 7.6 percent.

Even though inflation has tapered and concerns over core inflation eased, the volatility in food prices is expected to weigh on MPC's decision.

A poll of economists conducted by Moneycontrol showed that the MPC will hold the rates steady and maintain status quo on the stance as well.

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Inflation worry eases

Retail inflation eased to 4.9 percent in October. According to Barclays, the CPI inflation could have surged above the RBI's tolerance band of 6 percent in November.

The MPC is likely to remain in the wait-and-watch mode and monitor the transmission of rates in the system. The upbeat economic performance in Q2 beating all estimates will give the MPC the wiggle room to stick with higher rates and focus on inflation for longer.

Growth revision?

The better-than-estimated GDP growth may also elicit at relook at the RBI's growth forecast for the full year. The RBI had estimated GDP to grow at 6.5 percent in the July-September quarter.

The MPC has kept the repo rate unchanged at 6.5 percent in the past four monetary policy reviews. The repo rate was hiked by 250 basis points since May 2022.

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"We are not out of the woods yet and have miles to go, but readings of around 5 percent and 4.9 percent in September and October, respectively, are a welcome relief from the average of 6.7 percent in 2022-23 and 7.1 percent in July-August 2023,” a November 2023 RBI bulletin said.

Uncertain global environment

The RBI is likely to draw some comfort from global oil prices dropping to a five-month low on faltering demand. But fears of the Israel-Hamas conflict expanding further linger after the fragile truce between the two sides collapsed, while the Russia-Ukraine war is about to enter the third year.

The OECD has also pared the global growth forecast for 2023 to 2.9 percent from 3 percent earlier. The grouping of the industrialised economies sees global growth falling to 2.7 percent in 2024, the lowest since the global financial crisis. A global slowdown could chip away at India's export growth.

Also Read: This investment expert expects RBI to keep a hawkish stance on inflation

US Federal Reserve chairman Jerome Powell recently hinted that the interest rates were likely to continue at the current level and that the fight against the stubborn inflation wasn't over yet.

CNBC-TV18's Latha Venkatesh believes that the RBI is likely to hold the rates steady as concerns over food inflation haven't been fully addressed.

Watch her decode the economic scenario ahead of the MPC's policy review.