The Reserve Bank of India (RBI) is widely expected to retain the benchmark repo rate for the sixth time in a row on Thursday, but could assuage market concerns on liquidity with the system in a deficit mode for quite some time.

While the RBI’s monetary policy committee (MPC) will begin its three-day deliberations on Tuesday, its decisions are likely to be a non-event in terms of rate action.

Economists also do not foresee any change in its stance to neutral. It is also expected the rate-setting panel will reiterate that inflation has to be at a durable level of four per cent before any cut or a change in stance.

Committee members, however, will continue to have differences on their stand of “withdrawal of accommodation’’.

Retail inflation in December rose to a four-month high of 5.69 per cent.

Though it remains above the mandated target of 4 per cent, inflation in the third quarter of the fiscal at 5.37 per cent is lower than the RBI’s forecast of 5.6 per cent.

“With Q1 CY24 headline inflation still above the RBI’s target, we maintain our view that the RBI will keep the policy repo rate unchanged at 6.5 per cent at the February 8 policy meeting, continue with hawkish guidance, and reiterate the 4 per cent inflation target,” Goldman Sachs said.

“We further expect the RBI to retain its tight liquidity stance,” it said.

The MPC met just days after finance minister Nirmala Sitharaman presented
her last Budget before the general polls.

She surprised the bond markets with lower-than-expected gross borrowing
and fiscal deficit target for 2023-24.

It led to yields on the benchmark government bond dipping to around 7.05 per cent last Friday from the levels of 7.17 per cent at the beginning of last week.

“While there would be no rate action, the RBI could speak about liquidity. I don’t expect a change of stance though,” Suvodeep Rakshit, vice-president and senior economist at Kotak Institutional Equities told The
Telegraph.