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In the run-up to the announcement on December 8, 2023, all 10 economists responded to a poll by the Business Standard saying that the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) is expected to key interest rates unchanged. If their predictions are true, the MPC, a six-member expert body that determines some of the crucial economic determinants of the country, would be keeping these rates for the fifth consecutive times unaltered.

The last time the central bank raised the repo rate was in February 2023. Before that, it raised the key policy rate by 2.5 percentage points between May 2022 and February this year, in order to tackle the forces of inflation unleashed by a gush of liquidity in the market.

IDFC First Bank Economist Gaura Sengupta said, “Right now inflation is still above target levels and growth is holding up. So the focus remains on ensuring that inflation goes towards the 4 per cent target. The monetary policy is inclined to keep liquidity conditions tight, which they have achieved.”

“The RBI will continue with its stance because there are still inflationary risks, which continue to linger. And growth remains strong. So, they (RBI) have the headroom to keep monetary policy tight as of now,” said Sakshi Gupta, principal economist of HDFC Bank.

Banking system liquidity tightened further in November. The RBI injected Rs 48,754 crore on November 30. Deficit liquidity widened to nearly a five-year high on November 21 on the back of monthly goods and services tax payments. The central bank had infused 1.74 lakh crore on November 21.

With the sole exception of PNB Gilts, all the other respondents expect the MPC members to maintain the withdrawal of the “accommodation stance because the upside risk to inflation remains.

In October, the country’s retail (CPI) inflation rate fell to 4.87% in October. It is the lowest figure since June 2023. The figure for September was 5.02%.

However, the threat of food inflation remains a concern, especially due to the vagaries of the rains stocked by El Nino effects. This is a danger that the RBI governor has constantly emphasised this year.

In October, the food price index displayed a sequential increase, bucking a two-month downward trend. During this time, the price of vegetables went up 3.4% month-on-month, primarily driven by a 15.5% sequential rise in onion prices.

Vikas Goel, MD and CEO of PNB Gilts, told the newspaper that there was now chance of a shift in stance, considering the actions taken by the US Federal Reserve (Fed) so far.

SBI, BoB, ICRA, HDFC Bank, IDFC First Bank, Crisil, Kotak Mahindra Bank, Yes Bank and PNB said they do not expect a change of stance to “neutral.” Only PNB Gilts thought a change to “neutral” was possible.

None other than PNB thought that the central bank would reverse the inflation forecast for FY24. Only PNB said it might bring down the inflation projection for the current financial year by 0.2 percentage point.