RBI Monetary Policy Committee Meet: Insights, Expectations, and Market Projections

The Reserve Bank of India's Monetary Policy Committee (RBI MPC) has been in session since February 6, with only a few hours remaining before its conclusion. The meeting, held in Mumbai, marks the committee's first deliberation post the announcement of the Interim Budget by Finance Minister Nirmala Sitharaman.

Purpose of the RBI MPC Meeting 2024: Established by the government, the RBI MPC's primary objective is to maintain retail inflation based on the Consumer Price Index (CPI) at 4%, allowing for a margin of 2% on either side of this target. As the meeting unfolds, market participants are keenly anticipating the outcomes that will shape the monetary policy landscape.

What to Expect: Insights from Financial Experts:

Soumya Sarkar, Co-Founder, Wealth Redefine (AMFI registered MFD): According to Sarkar, the RBI is likely to maintain a status quo position during this monetary policy. While an immediate reduction in interest rates is improbable, the central bank might signal a potential rate cut in upcoming meetings. He notes the government's aim to reduce fiscal deficit from 5.8% to 5.1%, suggesting lower borrowings, potentially leading to softer yields. Sarkar speculates that rate cuts might be on the horizon, possibly in March or June, provided inflation remains controlled.

Pankaj Pathak, Fund Manager- Fixed Income, Quantum AMC: Pathak emphasizes the need for the RBI to shift its stance from "withdrawal of accommodation" to "neutral" due to tightened financial conditions. With real rates reasonably high and liquidity deficits exceeding Rs. 2 lakh crore daily, Pathak anticipates measures to address persistent liquidity challenges. He suggests the possibility of LTROs (long-term repo operations) or FX swaps to infuse liquidity promptly. Pathak also highlights the potential for split voting on rates within the MPC, especially after some members advocated for a rate cut in the previous monetary policy.

Market Projections: The bond market is already pricing for a softer tone from the RBI. However, in the event of split voting on rates, the market may increase the probability of a rate cut, potentially leading to a decline in yields. The RBI's stance on liquidity is expected to significantly influence the market dynamics, making this a crucial and live policy session. Stay tuned for updates as the RBI MPC meeting concludes, providing insights into the decisions that will impact the economic landscape.