The Reserve Bank of India’s (RBI’s) Monetary Policy Committee (MPC) is conducting its second meeting for the current fiscal year 2024-25 (FY25) from June 5-7, 2024. The six-member MPC panel will decide on the RBI’s repo rate, among others things.
The repo rate is the rate at which RBI lends money to other banks. As it affects the borrowing costs for banks, it has a consequent effect on the rate of interest at which the banks further lend money to its consumers – businesses and individuals.
The MPC convenes at least four times in a year to assess the prevailing economic conditions. It discusses key metrics that determine economic stability, such as inflation and growth figures. Primary among these are deciding on the repo rate – whether to maintain it, increase it to keep inflation in check by making borrowing more expensive, or decrease it to push economic growth by making borrowing cheaper
After the meeting, the MPC issues a statement outlining the committee’s decisions.
The meeting began on June 5 and will conclude on June 7, 2024. The decisions arrived at the meeting will be revealed on June 7. This three-day meeting will come up with policy announcements that would affect businesses and borrowers across different industries. The second FY25 bi-monthly assembly of MPC will set the course for interest rates and economic policies for the year ahead.
Also, this will be the first MPC meeting after the announcement of the results of the general elections a few days ago. The results had a huge impact on the market, leading to the market crashing by almost 6 per cent and wiping off around Rs 30 lakh crore of investors’ money in a single day. A new government will be sworn in a few days from now.
The decisions of the MPC have a significant impact on the core areas of the economy, such as:
Inflation: MPC adjusts the repo rate to keep inflation within a targeted range which is set by the Centre.
Fiscal Growth: Interest rates, when kept low, stimulate borrowing and investment trends, thereby helping the economy grow.
Fiscal Stability: The MPC’s policies regulate liquidity and credit flow which in turn influence the stability of financial institutions.
Most industry experts expect the RBI to maintain the repo rate at 6.5 per cent and balance inflation and economic growth.
“We expect the MPC to keep the policy rate unchanged at 6.5 per cent and maintain its ‘Withdrawal of Accommodation’ stance. The system liquidity is expected to ease after the formation of the new government, as the new government would resume spending. The headline CPI may remain sticky due to volatile food inflation. Any rate cut depends upon CPI moving towards 4 per cent on a durable basis and is also contingent on the US Federal Open Market Committee’s (FOMC) decision. Fiscal consolidation, upgrade of S&P's Indian sovereign rating outlook to positive, inclusion of India in JPM bond index from this June, is positive for the bond markets,” says Parijat Agrawal, head – fixed income, Union Mutual Fund.
Mandar Pitale, head - treasury, SBM Bank India said he expects MPC to continue with its commitment to focus on a 4 per cent goal post for CPI securing using appropriate monetary policy tools.
“During the last few months, RBI has actively managed the banking system liquidity to calibrate monetary conditions despite stable policy rates. The resilience of GDP growth backed by sustained momentum in domestic demand conditions, is providing the space to defer the start of the easing cycle staying focused on inflation,” he says.
Pitale also cited a ‘fragile outlook for the global economy’, adding that he expects the MPC to hold policy rates for the foreseeable future going ahead with a likelihood of starting a rate easing cycle in the last quarter of FY25. “Favourable monsoon impact on the food inflation trajectory will have a major influence on the commencement of the easing cycle,” Pitale adds.
Vikrant Mehta, head – fixed income, ITI Mutual Fund says that “since the MPC’s last meeting, geopolitical volatility rose in the first half of April, and though it appears to have subsided post that, underlying tensions continue to simmer.”
“Further, global markets now anticipate the US Fed to be on a “longer than anticipated hold” as compared to March,” he says.
