Reserve Bank of India (RBI) Governor Shaktikanta Das will announce the next set of monetary policies on Friday morning. Market experts anticipate that the RBI will maintain the current benchmark interest rate at 6.5%, which has been unchanged since February 2023, due to ongoing concerns about inflation. Despite inflation worries, the European Central Bank and Bank of Canada have started to reduce their key rates. However, the RBI’s Monetary Policy Committee (MPC) is expected to hold the interest rates steady. Das is set to announce the decision at 10 AM after the MPC concludes its deliberations, which began on Wednesday.
Economic growth considerations
Experts believed the RBI might refrain from cutting rates due to the current economic growth momentum, despite the high repo rate. An SBI research paper supports this view, suggesting that the central bank should maintain its current stance on withdrawing accommodation. The paper forecasts a potential repo rate cut in the third quarter of the fiscal year, though it predicts a shallow rate cut cycle.
Inflation projections
According to the SBI report, CPI-based retail inflation is expected to remain around 5% in May and decrease to 3% by July. The report anticipates inflation to stay below 5% from October until the end of 2024–25. In April, retail inflation was recorded at 4.83%.
Impact on housing market
Ashish Agarwal, Director of AU Real Estate, noted that keeping the repo rate unchanged would help maintain affordability for potential homebuyers, thus supporting the housing market. He emphasized that this policy is crucial for driving demand in the real estate sector and contributing to overall economic growth.
RBI’s mandate
The government has tasked the RBI with maintaining retail inflation at 4%, with a margin of 2% on either side. The MPC, which is responsible for setting the rates, comprises three external members—Shashanka Bhide, Ashima Goyal, and Jayanth R Varma—and three RBI officials.
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