RBI Monetary Policy 2023: Interest rates likely to remain unchanged; Here's what experts say

The Reserve Bank is expected to maintain its current policy rates for the fourth consecutive time at its upcoming bi-monthly monetary policy review in early October, according to experts.

This decision comes as retail inflation remains persistently high, and the US Federal Reserve maintains a hawkish stance. The benchmark repo rate was raised to 6.5% on February 8, 2023, and has remained unchanged since then due to elevated retail inflation and global factors, including high crude oil prices.

RBI Governor Shaktikanta Das-headed Monetary Policy Committee (MPC) started its three-day meeting on Wednesday, will be announced on Friday morning.

The borrowing cost which started rising in May last year has stabilised with RBI keeping the repo rate unchanged at 6.5 per cent since February, when it was raised from 6.25 per cent. Later in the next three bi-monthly policy reviews in April, June and August the benchmark rate was retained.

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Experts anticipate that the Reserve Bank Governor-led Monetary Policy Committee (MPC) will continue this stance, given concerns about inflation, tight liquidity, and uncertainties related to Kharif crop production.

Although August saw a slight dip in Consumer Price Index (CPI)-based retail inflation to 6.83%, it remained above the RBI's comfort level of 6%. The government has set a target for the RBI to maintain inflation at 4% with a 2% margin on either side.

Economists predict that headline CPI inflation may ease to 5.3-5.5% in September 2023 and further to 5.6% in Q3 FY2024, but risks to food inflation remain due to factors like uneven monsoons and low reservoir levels. The RBI's projection for CPI inflation in 2023-24 is 5.4%, with the MPC expected to remain cautious amid uncertainties in food inflation and high crude oil prices.

Some stakeholders hope for a reduction in interest rates to stimulate growth, but the prevailing high retail inflation and the Federal Reserve's hawkish stance may compel the RBI to maintain the status quo on rates. The final decision will consider factors such as resilient economic growth and rising inflationary expectations.