RBI’s MPC will continue to be in pause mode in June meeting: SBI report

Central Bank of IndiaThe Economic Research Division (ERD) of the Reserve Bank of IndiaMonetary Policy Committee (MPC) in light of the Consumer Price Index (CPI) and Core CPI numbers. The Monetary Policy Committee will hold its fortnightly deliberations on June 6-8, 2023.

“With the consumer price index down 4.7 percent in April, the question is whether 6.5 percent is the final rate… Given that the current rate of 6.5 percent is already higher than the required rate of 6.22 percent, We expect another pause before the RBI’s Monetary Policy Committee meeting on June 23, while carefully watching the CPI and core CPI number in the running months,” said Soumya Kanti Ghosh, Group Chief Economic Adviser, SBI.

Machine learning-based ERD analysis suggests that this final rate could drop to 6 percent in the next quarter, which could open up opportunities for the MPC to look at data trends more carefully for a year-end rate action.

Ghosh noted that the US Federal Reserve has likely reached its final interest rate, calming the nerves of jittery markets.

After cumulatively raising the repo rate by 250 basis points from 4 percent to 6.50 percent since May 2022, MPC pressed the pause button At its last meeting in April.

Governor Shaktikanta Das then said, “Let me stress that the decision to pause on the repurchase rate is for this meeting only… While recent high-frequency indicators point to some improvement in global economic activity, the outlook is now clouded by additional downside risks from fears.” financial stability.

“Headline inflation is moderate but still well above central bank targets… Looking ahead, headline inflation is expected to ease in 2023-24. Monetary policy measures taken since May 2022 are still working through the system.”

Das assured that the Monetary Policy Committee will not hesitate to take further measures as may be required in its future meetings.

SBI’s ERD said that The CPI reading for April 2023 is 4.7 percent Confirms the Monetary Policy Committee’s decision to pause last month.

The effect of climate change on growth

ERD said concerns remain on the growth front as India remains at the forefront of countries most vulnerable to the potential negative impacts of climate change.

Ekorap noted that India ranks seventh out of 181 countries in the Global Climate Risk Index 2021, despite a host of control measures initiated to control greenhouse gas emissions and promote renewable energy.

“More than a third of Indian districts are hotspots for extreme weather events that have a direct impact on the volatility of price prints (mostly supply side).

“It is clear that climate change poses a significant threat to India, materially impairing future growth if friction points remain unchecked in time,” the report said.

According to Ghosh, the credit, insurance and capital markets remain quite exposed to risks arising from multiple drivers as the country prepares for the return of El Nino this year.