All eyes on RBI’s MPC outlook

NEW DELHI: That the Monetary Policy Committee (MPC) of the Reserve Bank of India will announce an increase in interest rates on June 8 is a given. However, the MPC resolution will be keenly watched for its inflation and growth forecasts as well as other policy measures to augment what is the arguably the most challenging phase since India adopted a an inflation targeting framework in 2016.

17 out of the 41 economists who participated in a Bloomberg poll expect the MPC to announce a rate hike of 50 basis points – one basis point is one hundredth of a percentage point – while another 11 expect an increase of 40 basis points. The MPC increased policy rates by 40 basis points to 4.4% in an unscheduled meeting in May, even as it retained monetary policy stance as accommodative.

“Broadly, you are right to the extent that RBI would like to raise the rates in the next few meetings or in the next meeting at least. I myself have said in my minutes that one of the reasons for the off-cycle meeting in May was that we did not want a much stronger action in June, which is highly avoidable,” RBI Governor Shaktikanta Das had said in an interview to CNBC TV18 on May 24.

Several private banks, including India’s largest private sector bank HDFC announced an increase in their lending rates anticipating the central bank’s action, Mint reported on June 7.

The April hike has already reflected in loans and mortgages. Since the unscheduled MPC meeting, HDFC, the country’s largest home loan company has increased its retail prime lending rate, on which adjustable rate home loans are benchmarked, by 35 basis points. ICICI Bank has raised the marginal cost of fund based lending rate or MCLR (the minimum rate at which they can issue loans) by 30 basis points.

The consensus on a rate hike notwithstanding, banks seem to have made a representation to RBI against any drastic action on sucking liquidity from the system. Economic Times reported on June 7 that the