Key Repo Rate is projected to stay steady when the RBI’s monetary policy committee meets this week because inflation is thought to be under control. However, when liquidity improves as a result of deposits of Rs 2,000 notes, higher government spending, and the RBI’s foreign exchange interventions, interest rates on fixed income markets, which include bonds, are projected to decline.
The monetary policy committee (MPC), comprised of six people, will convene from June 6 to 8. Shaktikanta Das, governor of the RBI, will make the announcement on the final day of the meeting.
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Repo Rate Hike May 2022:
After beginning its cycle of rate hikes in May 2022 with the goal of lowering inflation, the MPC opted to ‘pause’ for the first time at its most recent meeting in April. Retail inflation decreased rapidly following the April meeting, reaching an 18-month low of 4.7%. The RBI is required to keep retail inflation between 2 and 6 percent. Ashish Vaidya, head of treasury at DBS Bank, predicted that the RBI will likely keep the pause in place the following week. A slowdown in rate increases by the US Federal Reserve is also generally expected.
According to a CareEdge analysis, both new loan and deposit rates fell in April (with lending rates falling more quickly than deposit ones). According to a Goldman Sachs study, “The RBI will likely keep the policy repo rate unchanged at 6.5% in the June 8 policy meeting, as we forecast headline inflation to be around 50bps (100bps = 1 percentage point below the RBI’s forecast from the April meeting) below the RBI’s forecast from the April meeting.” In the context of India, a repo rate freeze is viewed as the result of the inflation being brought under control. However, markets would see a US Federal Reserve rate decrease later this year as a hint of a slowdown if it happens, as some economists predict.
According to DBS Bank’s Vaidya, unless India is able to considerably expand its share of flows, such a circumstance will cause a slowdown in flows to emerging markets.
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