The Reserve Bank of India (RBI) is unlikely to decrease the benchmark interest rate at its upcoming monetary policy review meeting, which will take place shortly after the Lok Sabha election results are announced, due to inflation concerns, according to experts. The Monetary Policy Committee (MPC) may also refrain from cutting interest rates if economic development improves, despite the increased interest rate of 6.5 percent (repo) since February 2023.

The meeting of the Reserve Bank Governor Shaktikanta Das-led MPC is set for June 5–7. The decision will be announced on Friday, June 7. The results of the Lok Sabha election will be declared on June 4. The central bank last raised the repo rate to 6.5 percent in February 2023, and the rate has remained at that level in the last six bi-monthly decisions. If the interest rate remains unchanged on June 7, it will be the RBI's seventh time maintaining the benchmark repo rate at its current level.

On expectations for the June policy, Madan Sabnavis, Chief Economist of Bank of Baroda, stated that economic circumstances have largely stayed unaltered since the previous policy. High-frequency measures such as PMI and GST revenues suggest that growth is on track.

He went on to say that fears about inflation remain, despite the fact that the last several statistics have been less than 5 percent. The continuing hot wave has impacted vegetable prices in particular, and while the IMD has projected a typical monsoon, it is better to wait and see how it develops.

"Under these conditions, the policy rate and stance may remain unchanged. "It will be interesting to see if the RBI changes its GDP and inflation forecasts for FY25," Sabnavis said.

Sanjay Nayar, President of Industry Association Assocham, also stated that the central bank is expected to maintain the repo rate steady at the upcoming MPC meeting because retail inflation is over the objective of 4 percent.

"While inflation has begun to fall, the macroeconomic picture will become clearer only when the monsoon season ends in September. To achieve a long-term equilibrium between cyclical consumption-driven growth and inflation, investment growth must drive the supply side...," he continued.

The government has directed the Reserve Bank to keep consumer price index (CPI)-based inflation at 4%, with a margin of 2% on each side. Retail inflation based on the Consumer Price Index (CPI) was 4.83 percent in April of this year.

Aditi Nayar, Chief Economist at ICRA, stated that recent inflation statistics and the outlook for food and commodity prices indicated that the rates and stance would remain unchanged in the approaching June 2024 monetary policy review.

"This has been further cemented by the Indian economy's faster-than-expected expansion in Q4 FY2024, which resulted in full-year GDP growth of more than 8%." As a result, the possibility of a stance shift in August 2024 followed by a rate drop in October 2024 has decreased, unless an abundantly well-distributed monsoon reduces food costs in a sustainable manner," she said. The MPC is tasked with determining the policy repo rate in order to meet the inflation target while also promoting growth.

Ranen Banerjee, Partner and Leader Economic Advisory, PwC India, believes that given the uncertainty and concerns on the inflation front, as well as rising commodity and oil prices, the MPC will be forced to maintain policy rates at their current levels.

"There is no need for rate action because growth is sustainable, and US economic data indicates that the Fed will not decrease rates before October 2024. "Yields have softened without any rate action, given the government's expected lower borrowings as a result of the RBI's high dividends," he said.

Given the liquidity issues, Banerjee noted that there could be some intervention in the form of a CRR cut.

Manish Jaiswal, Group COO of Eldeco, anticipates the RBI to leave the repo rate unchanged at the upcoming monetary policy meeting.

"This policy aims to stabilize the real estate market, make homes more affordable, and promote long-term growth." Stable home loan rates boost consumer confidence and allow for more informed investment decisions. This beneficial atmosphere allows us to launch new projects and encourages purchasers to invest with confidence, driving real estate sector growth and contributing to India's economic prosperity," he stated.

The MPC consists of three external members and three RBI officials. External members of the rate-setting panel include Shashanka Bhide, Ashima Goyal, and Jayanth R Varma. In an off-cycle meeting in May 2022, the MPC hiked the policy rate by 40 basis points, which was followed by rate hikes of varied magnitude in each of the five succeeding meetings until February 2023. The repo rate was hiked by 250 basis points between May 2022 and February 2023.