The Reserve Bank of India's (RBI's) Monetary Policy Committee (MPC) will on Tuesday begin its two-day meeting to review the economic and monetary conditions and take a call on tweaking policy rates.
The MPC's decision on the repo rate, the rate at which RBI lends money to banks, will be announced on Wednesday (October 04, 2017).
There is wide expectation that the MPC will keep the repo rate unchanged given the gradual rise in retail inflation. The panel had cut the repo rate by 0.25 per cent to six per cent in the last monetary policy review held in August 2017. It had also maintained its neutral monetary stance.
The RBI has cut the repo rate by 200 basis points to six per cent since January 2015, when it began with the easing cycle.
In its August review, five of the six MPC members voted in favour of a rate cut. Continuing with his previous stance, Ravindra Dholakia voted for a 50-basis point cut. RBI Executive Director Michael Patra preferred a pause.
Ahead of the October review, DBS Bank economist Radhika Rao said there is pressure on the committee to ease rates given that the repo rate is at six per cent and CPI inflation below four per cent. The RBI, however, is unlikely to react this week as besides a gradual rise in inflation, significant changes in the macro backdrop also need to be assessed further.
CPI inflation accelerated to 3.36 per cent in August 2017, compared with 2.36 per cent in July 2017.
Besides inflation, the panel will also look at economic growth prospects for the current financial year in the light of factors like the effect of the Goods and Services Tax (GST) rollout.
Many agencies have revised the economic growth forecast for 2017-18. Ratings agency Fitch lowered growth estimates for the Indian economy by 50 basis points to 6.9 per cent for 2017-18.
GDP growth unexpectedly faltered in April-June 2017 to 5.7 per cent after clocking 6.1 per cent in the January-March 2017 period. This is the lowest outturn since early 2013, and the GDP has now been cooling for five consecutive quarters. However, economic activity may have been disrupted by firms running down inventory ahead of the implementation of the GST in July, Fitch said.