MPC maintains status quo on rates, preferring to watch the price gauge

The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) kept the repo rate unchanged for the third consecutive time during today’s meeting. But it signalled greater upside risks to inflation, and increased its inflation forecast for this fiscal. Given the recent flare-up in food prices, the central bank clearly wishes to see whether they become entrenched in inflation.

We expect the MPC to hold on policy rates in the next meeting, as it awaits a clearer picture on the inflation path. Uncertainty on the inflation trajectory has increased with the recent flare-up in food prices. Monsoon and weather disruptions, along with government interventions and global food supply trends, will influence the inflation outcome. A 25 bps rate cut in early 2024 is a conditional possibility for now.