The RBI’s Monetary Policy Committee (MPC) on Tuesday began 3-day meet to decide on key rates amid expectations it would change stance to neutral on low inflation but may not cut rates due to fiscal challenges and rising oil prices.

The six-member MPC, headed by RBI Governor Shaktikanta Das, will meet between Tuesday and Thursday for the sixth bi-monthly monetary policy statement for 2018-19. Deviating from the practice of releasing the resolution of MPC in afternoon, the Reserve Bank of India (RBI) will place it on its website at 11.45 am on February 7.

The RBI maintained status quo on the key lending rate (repo) in its last three bi-monthly policy reviews after raising the rate twice by 25 basis points each in the fiscal. Currently, the repo rate stands at 6.50 per cent.

According to experts, the MPC is likely to change its policy stance to ‘neutral’ from the current ‘calibrated tightening’ in its meeting this week on low inflation footprint but would refrain from cutting interest rates due to fiscal challenges and rising crude oil prices. In its previous monetary policy review in December 2018, the RBI had kept interest rates unchanged but held out a promise to cut them if the upside risks to the inflation do not materialise.

Having raised rates twice this fiscal, the central bank retained its ‘calibrated tightening’ policy stance. The government has mandated the RBI to contain retail (Consumer Price Index-based) inflation at 4 per cent (+,- 2 per cent). Continued decline in food prices pulled down retail inflation to an 18-month low of 2.19 per cent in December 2018.

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