Insights for Investors: Ahead of the RBI MPC Meeting on June 7th

The upcoming RBI Monetary Policy Committee (MPC) meeting scheduled for June 7th, 2024, follows closely on the heels of the significant Lok Sabha election results announced today. Against the backdrop of various factors such as the global and domestic economic landscape, evolving inflation trends, and geopolitical tensions, it is anticipated that the RBI will likely maintain the current interest rate stance during this meeting.

Assessment is based on the likelihood that both the Government and the RBI will opt to assess the broader geopolitical uncertainties stemming from recent escalations in the Middle East conflict, financial strains, persistent inflationary pressures, and a slowdown in international trade. Additionally, considerations surrounding the trajectory of globalization, the prevailing macroeconomic environment, government priorities, and efforts aimed at gradually reducing the fiscal deficit are expected to influence decision-making.

The macroeconomic landscape shows a gradual decline in CPI inflation, from 5.7% in December 2023 to 4.8% in April 2024, against resilient real GDP growth at 7.6% for FY 24 and a projected 7% for FY 25. With core inflation declining and expected to remain within the MPC’s upper threshold of 6%, the RBI projects CPI inflation to ease further. Liquidity pressures eased post-March 2024, though global economic uncertainties persist, making policy formulation complex.

The RBI is likely to maintain its current policy rates in the June 7, 2024, MPC meeting to ensure effective transmission of previous rate hikes. Expectations suggest interest rate cuts from October 2024 onwards due to a downward inflation trajectory. The language of the RBI’s upcoming Monetary Policy is expected to be dovish, indicating readiness for adjustments based on economic conditions. GDP growth projections for FY 24-25 are likely to be reaffirmed, alongside inflation projections between 4.5% and 4.75%. India’s transformative journey aims to leverage demographic dividends and digital infrastructure to drive growth, supported by policy reforms.