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The world's largest Central Federal Reserve has kept its interest rates stable this time. The effect of which was clearly visible on the European Bank and the Bank of England. RBI also seems to be in a mood to not make any changes in interest rates for the fourth consecutive time. This clearly means that this time no concession in EMI will be adopted by RBI during the festive season. This time also the repo rates will be kept constant at 6.5 percent. The last change in the repo rate was seen in the monetary policy of February and an increase of 0.25 percent was seen in the interest rates.
No hope of change in repo rates
Most economists expect no change in the repo rate at 6.5 percent. Even though core inflation is continuously decreasing. However, currently retail inflation is above the target band of RBI. Besides, RBI may also keep an eye on uneven monsoon rains and rising prices of crude oil. According to ICRA Chief Economist Aditi Nair, it is expected that the MPC will not make any changes in the October policy out of caution amid the cloud of food inflation and high crude oil prices. According to him, for interest rates to increase, core inflation must remain above 6 percent for about 6 months. Only the months of July and August have passed when retail inflation in the country has been more than 6 percent. This figure is likely to reduce in the coming months.
Also keep an eye on inflation and GDP growth
Inflation has presented a mixed picture since the last policy in August. Tomato prices, which had risen earlier, have fallen and core inflation has fallen to a four-year low. However, crude oil prices have increased by 10 percent since August, putting pressure on consumer price inflation. CPI inflation, which was 6.83 percent in August, is expected to fall within the RBI's 2-6 percent range in September. Economists feel that RBI will keep the retail inflation estimate at 5.4 percent and GDP growth estimate at 6.5 percent for the financial year 2024. No one will change these.
Liquidity will also be monitored
After the implementation of incremental cash reserve ratio in the August policy, there has been a decline in liquidity which has gone negative. Before August liquidity was in surplus. The market is hopeful that RBI will not affect loan demand during the festive season and will maintain liquidity. The market will also keep an eye on RBI's comment on India's inclusion in global bond indices. On September 21, JP Morgan has decided to include India in its GBI-EM Global Series starting from June 2024. This move is expected to generate cash flow of $25 billion.
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