The Reserve Bank of India is anticipated to modestly increasing repo rate by 25 basis points to 6.50 per cent at its meeting one week after the Union budget 2023 is presented on February 1. The RBI is likely to leave its main interest rate unchanged for the remainder of the year, according to a Reuters poll of economists.
These projections remained the same as a poll conducted last month, and predictions for a drop in GDP growth to 6.0 per cent in the fiscal year 2023–2024 from an anticipated 6.7 per cent in the current fiscal year likewise showed little change.
After this, the RBI is expected to pause as it would wait for inflation to decline before deciding to adopt a more stimulative approach as Asia’s third-largest economy contracts.
According to a January 13–27 Reuters poll, 40 out of 52 analysts predicted that the RBI will increase its benchmark repo rate by 25 basis points to 6.50 per cent. At the meeting on February 8, the remaining 12 foresee no change.
The median forecast was for rates to remain at 6.50 per cent until the end of 2023.
“They (the RBI) need to pause at some point to see what exactly is the impact of the previous monetary tightening overall on growth and inflation. That is why I believe it is not premature for them to pause after 6.50 per cent,” said Upasna Bhardwaj, chief economist at Kotak Mahindra Bank.
“That doesn’t mean they will leave the guards off the inflation focus.”
The poll showed inflation, last reported at 5.72 per cent in December, was expected to average 5.0 per cent in the 2023/24 fiscal year and 4.9 per cent in 2024/25, well within the RBI’s target band of 2 per cent-6 per cent after sitting above it for most of 2022.
In the last full budget before a 2024 general election, Prime Minister Narendra Modi’s government is expected to focus on lowering the fiscal deficit rather than extra spending.
While the expected 6.0 per cent rate of growth is likely to be faster than many other economies around the world, it would still not be enough to generate the number of jobs required to lift hundreds of millions of Indians out of poverty.
A deteriorating global economic outlook also suggests downgrades to India’s outlook are likely in coming months.
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