The Reserve Bank of India (RBI) is expected to maintain its current policy interest rates unchanged for the eighth consecutive time due to volatile food prices, easing inflation, and concerns over fiscal populism by the new coalition government in India. The monetary policy committee (MPC) of the RBI began its meeting on June 5, following the recent Lok Sabha election results.
Analysts anticipate that Prime Minister Narendra Modi’s government will face challenges in implementing economic reforms due to coalition pressures. The RBI is likely to continue its accommodative measures until inflation aligns with the target range of 4%. Despite a slight decline in Consumer Price Index (CPI) based retail inflation, food inflation remains high at 8.7%.
Key policy rates, including the repo rate at 6.5%, have remained unchanged for 15 months. The RBI’s hawkish stance on withdrawing accommodation is expected to persist until inflation stabilizes. Economists predict that CPI inflation will approach the RBI’s mid-point tolerance band of 4% in the first half of the current financial year.
The market is expected to focus on inflation and GDP forecasts for the upcoming fiscal year, with positive indicators likely to drive market sentiment.