May 31, 2023: India’s apex bank may reduce its key benchmark lending rate in the fourth quarter of 2023 amid easing inflation and other factors, global forecast agency Oxford Economics said on May 29, 2023.
“We are updating our baseline view for India to include a first rate cut by the RBI in Q42023. We think a mix of factors will allow the RBI to shift focus and adopt a more accommodative policy stance sooner,” Oxford Economics said.
Consumer price-based index (CPI) inflation eased sharply to 4.7% in April 2023, coming under the apex bank’s upper tolerance limit of 6%.
“The monetary policy committee (MPC) will want to see clear signs that inflation is stabilising in the middle of its target range before considering a dovish move – in our view this will happen before the end of the year,” it added.
On the same day, finance minister Nirmala Sitharaman said that the government was monitoring all data at ground level amid moderation in Inflation.
“The government is actively monitoring the prices of essential items such as food grains, vegetables, and fruits across various markets in the country. Appropriate measures are being taken to address the rising prices of specific commodities whenever required,” she said.
Repo rate as on May 31, 2023
RBI’s benchmark lending rate currently stands at 6.5%. The banking regulator increased the repo rate by 250 basis points since May 2022 to bring it to the current level from 4%.
With the consumer price-based inflation declining at 4.7% in April, the apex bank is likely to maintain a status quo on the repo rate, says State Bank of India’s economic research department.
“Given that the current rate of 6.5% is higher than the required rate of 6.22%, we expect one more pause by the RBI MPC in June while carefully watching the CPI and core CPI numbers in ongoing months,” SBI said mid-May. The six-member MPC will hold its bi-monthly deliberations on June 6-8, 2023.
“If inflation rate trajectory gives some comfort to continue the decision on pause in this interest rate hike cycle, it will be the biggest comfort factor for the real estate industry”, director of research at Knight Frank India Vivek Rathi said in a press note.
See also: What is repo rate? How does it impact your home loan EMI?
