RBI MPC meeting 2024: What to expect from the Central Bank on Feb 8? Here's what experts said 

RBI Monetary Policy meet: The Monetary Policy Committee of the Reserve Bank of India will disclose its decision on repo rates on February 8 after a three-day meeting that started on Tuesday in Mumbai.  On February 8, RBI Governor Shaktikanta Das will announce the MPC decision at 10 am. The RBI MPC has maintained the repo rate at 6.5 per cent for five consecutive times till December 2023. The benchmark interest rate was last hiked in February 2023, when it was raised from 6.25 per cent to the present 6.5 per cent. Before that, it has increased the repo rate by 250 basis points from May 2022 to February 2023.

In its December meeting, the RBI unanimously decided to keep the policy repo rate unchanged at 6.5 per cent. 

Though experts have said that the outcome of the meeting may turn out to be a non-event, the focus could be on whether the committee considers altering the policy stance of ‘withdrawal of accommodation’ and measures taken by the RBI to address the liquidity deficit in the banking system.

The State Bank of India, in its latest research report Ecowrap, said the RBI is likely to continue the pause stance in the upcoming Monetary Policy Committee meeting.

“We expect the RBI to continue the pause stance in upcoming policy…Strong US non-farm payroll data and wages seem to have pushed back on market expectations for a quick pivot to rate cuts…First rate cut on table from June ‘24… Aug ‘24 looks the best bet now,” SBI said in its latest report. 

The SBI report stated that CPI is expected to come around 5.4 per cent in FY24 and 4.6 per cent to 4.8 per cent in FY25. “While the inflation decelerated significantly in 2024 as compared to 2014, the inherent composition remains the same. Food contribution, then and now, remains the same,” it said. India’s retail inflation had increased to 5.6 per cent in December from 5.55 per cent in November. 

“We have long maintained that the RBI’s policy has been somewhat pegged to the Fed, specifically in the last two years, even as it formally targeted inflation. The swift turn of tone and action pivots of the RBI in the last two years have been influenced purely by global causes and recall a few key hawkish pivots,” said Madhavi Arora, Lead Economist at Emkay Global.

"We expect the RBI to keep the policy repo rate unchanged in the upcoming monetary policy. However, there is a strong case for the RBI to change its stance from “withdrawal of accommodation” to “neutral”. Financial condition has tightened a lot in the last few quarters. Real rates are reasonably high and likely to increase further as inflation is trending down. Liquidity condition has also tightened with banking system liquidity running in deficit of over Rs 2 lakh crore on daily basis. Its impact is clearly visible in the money market with AAA rated PSU banks issuing 3 months CDs at more than120 basis points above the policy Repo rate. In the last 5 years, this spread has been close to 30-50 basis points," said Pankaj Pathak, Fund Manager- Fixed Income, Quantum AMC.  

"The RBI may announce some measures to address the persistent liquidity challenge in the banking system. They have already started conducting VRR (variable rate repos) auctions to provide liquidity for short durations. However, this is a temporary solution and will not be effectively solve durable liquidity shortages," Pathak added.

“In the upcoming MPC meeting, we expect that the RBI will continue to maintain the policy repo rates. Consumer inflation, excluding food prices, is within the central bank's acceptable upper tolerance range and the fiscal consolidation plan outlined in the FY2024-25 budget, aiming to gradually reduce the fiscal deficit to 4.5% over the next two years, provides a buffer against potential inflationary pressures. This eases the RBI's stance on considering any interest rate hikes for the remainder of the year. Maintaining stability in interest rates is proving beneficial for the real estate market, particularly the residential sector. Consumers have already factored in elevated interest rates and are still actively engaging in home purchases. However, the affordable housing segment is experiencing sluggish residential sales," said Shishir Baijal, Chairman and Managing Director, Knight Frank India.