With the Reserve Bank of India (RBI) fixated on aligning retail inflation with the four per cent target, majority of the members of its rate setting panel are expected to vote to hold the repo rate at 6.50 per cent at their first meeting in the new financial year, scheduled from April 3 to 5.

The repo rate, which is the interest rate at which banks draw funds from RBI to overcome short-term liquidity mismatches, was left unchanged in all six bi-monthly monetary policy reviews in FY24 as retail inflation stayed above the monetary policy committee’s four per cent target.

This rate was last increased from 6.25 per cent to 6.50 per cent in February 2023.

While a majority of the economists expect the ‘withdrawal of accommodation’ stance to continue to ensure transmission of the 250 basis points repo rate hike effected between May 2022 and February 2023, some see the possibility of a surprise change in stance to ‘neutral’ to prepare the runway for rate cuts towards the middle of the new financial year.

In his last monetary policy statement, RBI Governor Shaktikanta Das observed that the job (of bringing down inflation) is not yet finished, and the central bank needs to be vigilant about new supply shocks that may undo the progress made so far.

He emphasised that monetary policy has to remain vigilant to ensure that the central bank successfully navigates the last mile of disinflation.

“With the policy repo rate remaining on hold at 6.50 per cent for more than a year, the main focus has been on liquidity management and the evolution of “effective interest rate” in money markets.

“Both repo rate and stance are likely to remain unchanged under base case scenario; but can’t rule out the possibility of a change of stance to neutral, given past evidence of the central bank surprising with its decision, particularly in April,” said Kaushik Das, chief economist, India & South Asia, Deutsche Bank.

CARE Rating Economists said the RBI is expected to maintain status quo on both rates and stance in its upcoming policy meeting. They see the RBI opting for a shallow rate cut cycle of 50 basis points starting Q3 (October-December) FY25.