The Reserve Bank of India (RBI) is widely expected to hold the policy repo
rate at 6.50 per cent for the third consecutive time on Thursday.

Analysts expect the RBI to maintain a hawkish tone as it waits its past rate actions to play out amid inflation inching upwards, with growth not of major concern.

The six-member monetary policy committee (MPC) of the RBI will begin its three-day meeting from August 8.

Economists said the panel is unlikely to tinker with the repo rate even though headline CPI (consumer price index) inflation rose to a three-month high of 4.81 per cent in June.

Inflation still remains below the central bank’s upper limit of 6 per cent.

While the rise in June inflation was mainly on account of hardening vegetable prices, analysts do not expect any relief in July, with the forecast for the headline number shooting above 6 per cent.

Soumya Kanti Ghosh, group chief economic adviser, State Bank of India, said CPI inflation could come at 6.7 per cent. He added that core inflation — it excludes the food and fuel components — is higher than headline CPI.

In July, headline CPI is expected to increase to 6.7 per cent while core CPI is likely to fall to 5 per cent.

Analysts said that while the RBI may have considered a spike in inflation during July, it will still not go ahead with hiking the repo rate. The central bank jacked up the benchmark rate by 250 basis points between May 2022 to February 2023

``We do expect a status quo decision by the monetary policy committee this time. Inflation while being lower than 5 per cent in June is expected to come closer to 6 per cent in July. The prices of vegetables as well as pulses will continue to exert upward pressure on food inflation,” Madan Sabnavis, chief economist, Bank of Baroda, said.

He said GDP growth in the first quarter is expected to be closer to 8 per cent thus indicating stability. “There is, hence, no compelling reason to spur growth presently. Hence repo rate will remain unchanged till the end of calendar year.''

According to the economists at CareEdge, the meeting comes amid a sharp spike in vegetable prices, a spatially uneven monsoon, and a divergent global monetary policy cycle.

As seasonal inflationary pressures gather momentum, the RBI is likely to prolong the pause.

"Despite the recent surge in inflation, which can be attributed to transitory factors such as a significant increase in vegetable prices, there are underlying forces that could sustain elevated inflation levels,’’ they noted.

However, the contraction in wholesale inflation along with the softness in many global commodity prices will provide some cushion to the rising inflationary pressures, with a lag.

The expected moderation in core inflation will also provide some comfort. Given these conditions, the MPC members will likely take a wait-and-watch approach to better understand the nature of inflationary pressures before announcing a change in the policy rate, CareEdge said.