The Reserve Bank of India (RBI), led by Governor Shaktikanta Das, is anticipated to retain its present policy stance when the Monetary Policy Committee (MPC) makes its decision on Wednesday. According to various sources, the central bank will likely hold interest rates steady. However, signals of split within the MPC indicate that this meeting may not be without controversy.

The RBI is now attempting a difficult balancing act. With new members joining the MPC and the US Federal Reserve reducing interest rates, the RBI must strike a balance between boosting domestic economy and managing inflation.

The central bank has already held rates unchanged for eight straight sessions since its previous raise in February 2023, with the repo rate at 6.50%.

During its last meeting in August 2024, the MPC reaffirmed its position of "withdrawal of accommodation" to address inflationary concerns. Four of the six committee members voted to leave the tariffs unchanged. However, two members, Jayanth Varma and Ashima Goyal, broke ranks and called for a 25-basis-point drop, stressing the need to change to a neutral position in view of changing global economic conditions.

Key Decisions from the August MPC Meeting

Repo rate: 6.50%.

Standing Deposit Facility (SDF): 6.25 percent.

Marginal Standing Facility (MSF) and Bank Rate: 6.75 percent.

Stance: withdrawal of accommodation.

Growth forecasts for fiscal year 25

The RBI has kept its FY25 GDP growth prediction unchanged at 7.2%. However, the prognosis for the second quarter (Q2) of FY25 was slightly cut from 7.3% to 7.2%, while the third-quarter (Q3) projection remained unchanged at 7.3%. Despite small revisions, the general growth prognosis remains positive.

Q1: 7.2% (from 7.3%).

Q2: 7.2%

Q3: 7.3%

Q4: 7.2%

What lies ahead?

While the RBI is anticipated to keep interest rates unchanged, the widening rift among the MPC shows the uncertainties surrounding India's monetary policy. As inflation concerns linger and global conditions move, the central bank's next steps will need to be carefully considered to guarantee that domestic economy does not stall while inflation is kept under control.

With the MPC's ruling looming, all eyes are on how the RBI will address these difficult issues