To combat rising retail inflation and remain competitive with other countries, the Reserve Bank is considering a 25 basis point increase in the benchmark interest rate during the upcoming bi-monthly policy announcement. It may be the final adjustment in the current cycle of monetary tightening that began in May 2022. The Reserve Bank’s Monetary Policy Committee will convene for three days on April 3, 5, and 6 to consider a range of domestic and global factors before releasing the first bi-monthly monetary policy for fiscal 2023-24 on Thursday.

To curb inflation, the Reserve Bank of India (RBI) has raised the repo rate by 250 basis points since May. Despite this, inflation has persisted above the central bank’s desired threshold of 6 per cent for the majority of the time.

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The committee headed by the RBI Governor will heavily consider two critical factors when finalizing the next monetary policy. These factors include high retail inflation and recent actions taken by central banks of developed nations, particularly the US Federal Reserve, the European Central Bank, and the Bank of England.

After remaining below the six per cent mark for two months in November and December 2022, retail inflation rose above the desired threshold, prompting action from the Reserve Bank. The inflation, based on the Consumer Price Index (CPI), reached 6.52 per cent in January and 6.44 per cent in February.

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The Chief Economist at Axis Bank, Saugata Bhattacharya said that he is inclined to implement a final rate hike of 0.25 percentage points to curb persistent core inflation. Bhattacharya recently informed reporters of his stance. Furthermore, he stated that the current anecdotal evidence of a slowdown in growth and a decrease in inflation should lead the six-member Monetary Policy Committee to reduce rates by the end of the third quarter of FY24.

Recently, the Chief Economist at the Bank of Baroda, Madan Sabnavis stated that due to the high CPI inflation of 6.5 per cent and 6.4 per cent in the last two months and near-neutral liquidity. He also anticipates the RBI to increase rates by 25 basis points and possibly shift its stance to neutral, indicating the end of this cycle. The Reserve Bank is expected to conduct six Monetary Policy Committee meetings during the fiscal year 2023-24. The central government has charged the RBI with the responsibility of maintaining retail inflation at four per cent with a margin of two per cent on either side.