A monetary policy committee (MPC) led by the six members of the Reserve Bank of India (RBI) is currently in session and its three-day meeting will come to a close on Thursday (August 10). Experts are concerned that the RBI MPC outcome may not reflect any significant changes in the domestic market, as long as the central bank remains fixed to current rates and adherence to strict RMODs.
It is believed by experts that the RBI will maintain a fixed course on rates and its position until August 10.
The Mint survey of 10 economists indicates that RBI MPC will likely maintain the same approach to interest rates and policy at its upcoming meeting. All economist who study the data expect M PC to keep the repo rate at 6.5 per cent while still supporting the withdrawal of accommodation.
Although most are expecting RBI to maintain a prolonged hold after the August policy, the market is also anticipating if they hike by at least 25 basis points in the next two RBI meetings.
Poll: RBI rate, stand by position not to pause; Read more
Madhavi Arora, the Lead Economist at Emkay Global Financial Services, stated that the RBI would be focusing on durable inflation in the MPC policy due to a rise in perishable food prices, while also easing core inflation and potentially reversing food price trends in Q4CY23.
Umesh Kumar Mehta, CIO of Samco Mutual Fund, predicts that the RBI will maintain the current status quo this week, but the chances of interest rate hikes or reductions remain unchanged.
The renewed strengthening of crude oil prices and the rise in global food prices due to extreme weather conditions have left the global economic and inflationary environment unaffected, leading economists like Mehta to suggest that data alone could determine interest rates.
RBI MPC’s statement on August 10 may not be revised, but they may provide insights on inflation and growth forecasts.
What are the potential actions that the market can take?
The market is expected to remain neutral as the RBI already has a status quo. However, if there is reversal of growth and inflation projections, the market may experience some fluctuations.
If the RBI MPC doesn’t alter the current status quo, the market may remain neutral, and rate-sensitive sectors like banking, auto, or realty may not benefit from sustained gains. These sectors may experience renewed buying if the bank decides to cut rates in the near future, according to G. Chokkalingam, Founder & Head of Research at Equinomics Research.
Is it possible for the RBI to increase rates in response to inflation and a US Fed hike, which coincides with the start of the policy meet today?
Aditya Gaggar, Director of Progressive Shares, remarked that the RBI is expected to maintain the status-quo on key interest rates for the third consecutive month during its bi-monthly policy review, even though the US Fed and European Central Bank have already hiked benchmark rates.
“The bourses and markets have been anticipating this, but there is still some consideration in the committee regarding the interest rate,” Gaggar stated.
The risk of hawkish stance on interest rates in the short term may cause volatility in rate-sensitive stocks, particularly in banking, NBFC, auto, and real estate, leading to a cautious approach towards trading until the outcome is announced, according to Gaggar.
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