The Reserve Bank of India (RBI), led by Governor Shaktikanta Das, is expected to maintain the repo rate at 6.50% as part of their strategy to balance growth and inflation control, despite rising crude oil prices and surging US bond yields. This decision comes after a three-day review by the Monetary Policy Committee (MPC), which concluded on Thursday.
The announcement of the monetary policy for fiscal year 2023-24 is set to be made on Friday, October 6, at 10 am, followed by a press conference at noon. The statement will provide insights into RBI's approach to managing complex inflation trends marked by volatile vegetable prices, increasing cereal and pulses costs, and escalating crude oil prices.
Inflation has seen a spike in recent months, reaching 7.44% and 6.83% in July and August respectively. Notably, onion prices have surged by 25.9%, adding further pressure to inflation rates. Global volatility has also resulted in hardening bond yields. However, despite these challenges, RBI's GDP and inflation projections for 2022-23 remain at 6.5% and 5.4%, respectively.
Analysts predict that the repo rate will remain unchanged due to RBI's ongoing 'withdrawal of accommodation' stance. However, some economists on D-Street anticipate a potential 25 basis point hike in response to the rising oil prices and overall surge in prices.
In this context, Nomura has warned that a $10 per barrel increase in oil could result in a 25-basis-point inflation rise, highlighting the intricate balance the MPC must maintain to control inflation while fostering economic growth.
Key factors such as core inflation measures, wage growth, future inflation expectations, and the repo rate are central to this policy. The fourth monetary policy of FY 2023-24 will indicate RBI's strategy in response to these economic conditions.
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