RBI MPC decision today: Will repo rate remain unchanged? Here's what to expect

RBI Governor Sanjay Malhotra is widely expected to keep the repo rate unchanged in the MPC decision today. Central banks in Europe, Australia, Indonesia, the Philippines, Singapore, South Korea and South Africa have raised benchmark interest rates following higher inflationary pressures after the US-Israel conflict involving Iran. The US Federal Reserve and the Bank of Japan, however, have also left rates unchanged.

In Short

• Retail inflation rose in June but remains within RBI's tolerance band
• Wholesale prices, crude oil and rupee weakness are fuelling caution
• Markets to watch RBI's tone on future rate hikes and inflation outlook

Reserve Bank of India (RBI) Governor Sanjay Malhotra is expected to keep the repo rate unchanged when he announces the Monetary Policy Committee's (MPC) decision on Wednesday, with economists betting that easing inflation gives the central bank enough room to stay on hold despite mounting global uncertainties.

According to a Reuters poll, 68 of the 72 economists surveyed expect the RBI to leave interest rates unchanged. However, analysts believe the central bank could strike a more hawkish tone as inflation risks build due to rising crude oil prices, geopolitical tensions and pressure on the rupee.

If the RBI maintains the status quo, the repo rate will remain at its current level, signalling that policymakers are prioritising price stability while continuing to monitor global developments.

WHY IS RBI EXPECTED TO HOLD RATES?

India is in a different position from several major economies that have tightened monetary policy in recent months.

Central banks in Europe, Australia, Indonesia, the Philippines, Singapore, South Korea and South Africa have raised benchmark interest rates following higher inflationary pressures after the US-Israel conflict involving Iran. The US Federal Reserve and the Bank of Japan, however, have also left rates unchanged.

Although India's retail inflation accelerated to 4.38% in June, crossing the RBI's 4% target for the first time in 17 months, it remains comfortably within the central bank's tolerance band of 2% to 6%. Core inflation has also remained close to 4%, giving policymakers room to wait before taking any policy action.

WHAT COULD CHANGE RBI'S TONE?

While a rate hike is not expected this week, economists believe Governor Sanjay Malhotra-led MPC may acknowledge that inflation risks are increasing.

Wholesale inflation climbed to 9.87% in June, household inflation expectations have risen and higher crude oil prices following renewed geopolitical tensions in the Gulf have increased concerns over imported inflation.

Economists also expect the RBI to closely watch the rupee after renewed weakness linked to rising oil prices.

Interest-rate swap markets are already pricing in around 75 basis points of rate hikes over the next 12 months, reflecting expectations that tighter monetary policy may eventually become necessary if inflation remains elevated.

WILL RBI REDUCE REPO RATE?

Atul Monga, CEO and Co-founder of BASIC Home Loan, believes the RBI is likely to maintain the status quo to provide stability amid global uncertainty.

"The RBI is expected to keep interest rates unchanged, which should provide some stability to the housing market. Homebuyers can feel a lot more confident about making the long-term decision to buy a home if they can predict their EMIs and how much they will be borrowing," he said.

According to Monga, inflation, crude oil prices and global uncertainty will remain key factors influencing the RBI's policy decisions in the coming months.

"Keeping liquidity healthy will also be important to ensure that credit continues to flow smoothly. This stable environment can help sustain housing demand and support homebuyers."

Pradeep Aggarwal, Founder and Chairman of Signature Global (India) Ltd, also expects the central bank to maintain policy stability.

"The upcoming RBI Monetary Policy Committee meeting comes at a time when the global economy continues to face heightened uncertainty due to geopolitical tensions, trade disruptions, and volatile commodity prices. While these external headwinds warrant a cautious approach, domestic inflation remains well within the RBI's manageable range, providing the central bank with adequate room to maintain policy stability," he said.

He added that lower borrowing costs and improving affordability have supported housing demand, and maintaining the current policy stance would continue to strengthen the sector.

WHAT SHOULD MARKETS WATCH?

Even if the RBI keeps the repo rate unchanged, Governor Sanjay Malhotra's commentary will be closely scrutinised for clues on the future direction of interest rates.

Markets will watch whether the central bank:

Signals greater concern over rising inflation.

Revises its outlook on crude oil prices and imported inflation.

Indicates that policy tightening may be required if inflationary pressures persist.

While economists overwhelmingly expect the RBI to stay on hold today, its guidance on inflation and the interest-rate outlook could be just as important as the repo rate decision itself.

(Disclaimer: The views, opinions, recommendations, and suggestions expressed by experts/brokerages in this article are their own and do not reflect the views of the India Today Group. It is advisable to consult a qualified broker or financial advisor before making any actual investment or trading choices.)

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