RBI expected to hold repo rate steady in upcoming MPC meeting: Care Edge

New Delhi [India], August 7 : Amid the speculations on the policy stance of the upcoming Monetary Policy Committee (MPC), credit rating agency, Care Edge has anticipated a stable repo rate.

"The stance is anticipated to remain at 'withdrawal of accommodation,' with the policy repo rate held at 6.5 per cent," the rating agency said.
Adding the reasons behind its anticipation, the credit agency further emphasized factors such as the inflation and, overall risk of food inflation due to the above-normal monsoon will influence the decision of the monetary committee.
"Food inflation has stayed above 6 per cent for the last twelve months, averaging 8 per cent. Any further supply-side shocks could result in sustained high inflation thereby destabilizing inflation expectations," it added in support of its anticipation of policy rate change.
It also added that the telecom tariff hikes, and sales tax increases on fuel prices affecting the inflation levels, will influence the decision.
According to the rating agency, the recent hikes in telecom tariffs by major mobile service providers, ranging from 10-25 per cent, will put upside pressures on core inflation. Telecommunication services account for about 2.1 per cent of the overall CPI basket and 4.4 per cent of core inflation.
In addition, the report added that the recent sales tax on fuel prices in a few states will also marginally impact inflation prints.
It also mentions the revision of the prices for aviation turbine fuel (ATF) and commercial cooking gas by major state-owned retailers which will affect the CPI.
"Given this situation, the MPC will exercise caution and seek further clarity on the evolving risks to the inflationary outlook, particularly concerning the food basket, before considering any changes in policy rates and stance," Care Edge added.
However, the experts have highlighted that a decline in commodity prices has relieved earlier input cost pressures. They expect the high food inflation will cool down soon, primarily due to short-cycle vegetables; their prices should drop as fresh supplies become available.
"Interestingly, excluding vegetables, the CPI rose by only 3.5 per cent year-on-year in June, indicating that headline inflation is confined to specific sectors. Also, inflation expectations have remained well-anchored and on track with the 4 per cent target. Despite external fluctuations, core inflationary pressures are subdued. Given these dynamics, the RBI's monetary policy should prioritise domestic indicators rather than mirroring the actions of the Fed or other central banks," said Jyoti Prakash Gadia, Managing Director at Resurgent India.