Amidst the ongoing tension in West Asia, rising energy prices and supply chain related challenges, experts believe that the Reserve Bank of India (RBI) may keep its key policy interest rate (repo rate) unchanged at 5.25 percent this week. Apart from this, the Central Government will also maintain its cautious stance. The three-day meeting of the six-member Monetary Committee (MPC) of RBI will be held from June 3 to 5. RBI Governor Sanjay Malhotra will announce policy decisions on June 5.
RBI may increase inflation estimates
Some experts believe that due to rising energy prices, weakening rupee and supply chain disruptions, RBI may increase its inflation estimates and cut the Gross Domestic Product (GDP) growth rate estimate. In April, the RBI had kept the repo rate unchanged, adopting a watch-and-wait approach to assess the impact of the West Asia conflict on energy supply, inflation and economic growth. A report by the Economic Research Department of State Bank of India (SBI) has said that in view of the current unstable circumstances, the monetary policy of June is likely to maintain status quo.
What is RBI’s estimate?
According to the report, Consumer Price Index (CPI) based inflation may remain above five percent in the next three quarters, while it is estimated to be between four to 4.1 percent in the current quarter. The report estimates real GDP growth to be 7.2 percent in the fourth quarter of the financial year 2025-26 and 7.5 percent in the entire financial year. Bank of Baroda Chief Economist Madan Sabnavis also ruled out the possibility of any change in the repo rate or policy stance next week. However, he said that RBI’s stance will remain cautious and it may increase the inflation estimate by about five percent and reduce the GDP growth estimate from 6.9 percent to about 6.5 percent.
RBI policy will not change
RBI had said in its annual report released on Friday that it will review and improve the GDP growth and inflation forecast system during the current financial year. CRISIL Principal Economist Deepti Deshpande said that RBI is likely to keep the repo rate unchanged and maintain a neutral policy stance. He said that currently the inflationary pressure is mainly related to the supply side, which includes higher fuel costs, increased raw material prices and weak rupee.
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