Reserve Bank of India (RBI) is unlikely to cut the benchmark interest rate at its upcoming monetary policy review meeting, taking place soon after the announcement of the Lok Sabha election results, amid inflation challenges, said experts.

The Monetary Policy Committee (MPC) may also refrain from rate cut as economic growth is picking up, notwithstanding the elevated interest rate of 6.5 per cent (repo) prevailing since February 2023.

The meeting of the Reserve Bank Governor Shaktikanta Das headed MPC is scheduled for June 5 to 7. The decision will be announced on June 7 (Friday). Results of the Lok Sabha elections will be announced on June 4.

The central bank last hiked the repo rate to 6.5 per cent in February 2023 and since then it has held the rate at same level in its previous six bi-monthly policies.

If the interest rate remains untouched again on June 7, it would be the eighth time for the RBI to maintain the status quo on the benchmark repo rate.

On expectations from the June policy, Madan Sabnavis, Chief Economist, Bank of Baroda, said economic conditions have largely remained unchanged since the last policy. High-frequency indicators like PMI and GST collections do show that growth is on course.

He further said concerns on inflation remain even though the last couple of numbers have come at less than 5 per cent. The ongoing heat wave has affected prices of vegetables in particular and while the IMD has predicted a normal monsoon, it would be prudent to wait and monitor how it progresses.

"Under these conditions, a status quo on policy rate and stance may be expected. It would be interesting to see, however, if RBI changes forecasts of GDP and inflation for FY25," Sabnavis opined.

Sanjay Nayar, President of industry body Assocham, too said the central bank is expected to keep the repo rate unchanged in the ensuing MPC meeting as retail inflation remains above the target of 4 per cent.

"Though inflation has started receding, the macros would become clearer only after the monsoon season plays out in September. To get a sustainable balance between cyclical consumption-driven growth and inflation, investment growth to propel the supply side...," he added.

The government has mandated the Reserve Bank to ensure the consumer price index (CPI) based inflation remains at 4 per cent with a margin of 2 per cent on either side.

The retail inflation based on the Consumer Price Index (CPI) was 4.83 per cent in April this year.

Aditi Nayar, Chief Economist, ICRA, said the recent inflation data and the outlook for prices of food and commodities had suggested a status quo on the rates and stance in the upcoming June 2024 monetary policy review.

"This has been further cemented by the higher-than-forecast expansion in the Indian economy in Q4 FY2024, which led to the full year GDP growth printing above 8 per cent. As a result, the likelihood of a stance change in August 2024 followed by a rate cut in October 2024 has eased, unless an abundantly well distributed monsoon quells food prices in a sustainable fashion," she added.

The MPC is entrusted with the responsibility of deciding the policy repo rate to achieve the inflation target, keeping in mind the objective of growth.

Ranen Banerjee, Partner and Leader Economic Advisory, PwC India, opined that given the uncertainty and risks on the inflation front, commodity prices and oil prices trending higher, the MPC will be constrained to have a status quo on the policy rates.

"There is no urgency on rate action too as the growth is sustaining and the US economic data also suggests that the US Fed will not cut rates before October 2024. The yields have softened without any rate action given the expected lower borrowings by the government from the high dividends from RBI," he said.

There could however be some action by way of reduction in the CRR given the liquidity challenges, Banerjee added.

Manish Jaiswal, Group COO, Eldeco, also expects the RBI to keep the repo rate steady at the forthcoming monetary policy meeting.

"This policy aims to stabilize the real estate market, make homes more affordable, and sustain growth. Stable home loan rates improve consumer confidence and enable more informed investment decisions. This favourable environment enables us to launch new projects and encourages buyers to invest confidently, thereby driving real estate sector growth and contributing to India's economic progress," he said.

The MPC consists of three external members and three officials of the RBI.

External members of the rate-setting panel are Shashanka Bhide, Ashima Goyal, and Jayanth R Varma.

In an off-cycle meeting in May 2022, the MPC raised the policy rate by 40 basis points and it was followed by rate hikes of varying sizes, in each of the five subsequent meetings till February 2023. The repo rate was raised by 250 basis points cumulatively between May 2022 and February 2023.

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