RBI may maintain status quo on interest rate: Experts

NEW DELHI: The Reserve Bank is likely to maintain status quo on the key interest rates for the third time in a row in its upcoming bi-monthly policy review despite the US Federal Reserve and the European Central Bank hiking benchmark rates, as domestic inflation is within the RBI’s comfort zone, say experts.

The borrowing cost which started rising in May last year has stabilised with RBI keeping the repo rate unchanged at 6.5 per cent since February when it was raised from 6.25 per cent. In the previous two bi-monthly policy reviews in April and June the benchmark rate was retained.

The RBI Governor-headed six-member Monetary Policy Committee (MPC) is scheduled on August 8-10. The policy decision would be announced on August 10 by Governor Shaktikanta Das.

“We do expect the RBI to hold on to a status quo position on both rates and stance. The reason is that while inflation is presently running at less than 5 per cent there would be some upside risk to this number in the coming months with prices of vegetables and pulses going up sharply. Therefore, an extended pause is expected,” said Madan Sabnavis, chief economist, Bank of Baroda. In fact, he added with the RBI having a forecast of inflation of 5.4 per cent for the third quarter, it looks unlikely that the repo rate or stance may be changed till the beginning of the next calendar year.

Upasna Bhardwaj, chief economist, Kotak Mahindra Bank said: “On the policy stance, since the liquidity conditions have turned favourable post the announcement of the withdrawal of the Rs 2,000 note, we expect the RBI to continue to hold on to the current stance of ‘withdrawal of accommodation’”.

On expectations from the upcoming RBI Policy, V Swaminathan, executive chairman, Andromeda Sales said the central bank will maintain the status quo and opt for hawkish stance in view of the recent rate hikes announced by the Federal Reserve and European Central Bank.

“Secondly, the retail inflation may not ease to the anticipated levels on account widespread rains and disruption in supply chain due flooding in different parts of the country. Taking into account these factors the best possible course for the central bank would be to go in for the status quo for the third time in a row,” he added.

Lakshmi Iyer, CEO-investment and strategy, Kotak Investment Advisors said the tone and texture taken by the MPC will be more relevant for markets.