Will the RBI raise interest rates further or put them on hold?
Are you wondering if the Reserve Bank of India (RBI) will raise interest rates again, or put a hold on them? With the current economic climate in flux, this is an important question to ask. In this article, we’ll take a look at the factors that could affect the RBI’s decision and explore what the future might hold for interest rates.
The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) will decide on February 8 whether to delay or raise the policy rate by 25 basis points to 6.50 percent in light of the decline in retail inflation.
The MPC of the RBI will meet from February 6–8 to make rate decisions.
“Over the past three months, inflation has significantly decreased and is continuing to trend downward. Due to the US’s slower rate increases, external conditions have also improved. Over the past few months, the foreign exchange reserves of the RBI have also grown. All of these developments ought to reassure the RBI. We anticipate that the RBI will stop raising rates at its meeting in February and keep the repo rate at 6.25 percent for a lengthy period of time. Additionally, it can shift the policy’s posture to neutral “the fund manager for fixed income at Quantum AMC, Pankaj Pathak.
Pathak predicts that the bond market will respond favorably. “We anticipate a gradual decline in bond yields, but the increased supply of bonds will prevent a sharp decline in yields.”
In December 2022, retail inflation reached a year-low of 5.72 percent, primarily as a result of reduced food costs, particularly those of fruits and vegetables. This was the second month in a row that it stayed within the 2 to 6 percent tolerance range set by the RBI.
However, because core inflation is still on the higher side, economists are concerned.
Inflation measured by the consumer price index (CPI) was 5.88% in November 2022, according to information made public on Thursday by the Ministry of Statistics and Programme Implementation. It was at a higher band of 6.77 percent in October 2022.
According to government figures, food inflation was 4.19 percent in December 2022, down from 4.67 percent in November 2022.
the inflation statistics “Retail inflation has fallen more than predicted in December, bringing the headline print below the RBI’s upper tolerance for the second straight month,” Rajani Sinha, chief economist at CARE Ratings, had told IANS.
The decrease in vegetable prices, which also served to offset the increase in the price of other food basket items including cereal, milk, and meat, is substantially responsible for the softening. Concerningly, core CPI inflation is still stubbornly around 6% and there are signs of excessive inflation in the services sector.
Prof. Jayanth R. Varma was one of the members that voted against the motion to raise the repo rate by 35 basis points to 6.25 percent during the MPC meeting that took place from December 5–7, 2022.
The Reserve Bank of India’s decision on interest rates will have a big impact on your finances. Will they hold the current rate or raise it even higher? Stay tuned to find out what the RBI decides and how that could affect you!