RBI MPC Rate Cut Alert: How Will It Impact Gold Rates in India?

RBI MPC Meeting Announcement: The Reserve Bank of India Governor Sanjay Malhotra on Wednesday announced a 25 basis points rate cut after the conclusion of Monetary Policy Committee (RBI MPC) meeting.

RBI in February, announced a 25 bps rate cut for the first time after the COVID pandemic, reducing the repo rate to 6.25% for Indian banks. Another round of rate cuts in April has come in the backdrop of skyrocketing gold price amid geopolitical uncertainty. Will RBI MPC's rate cut impact gold price in India in long run? Let's understand here.

What is RBI MPC?

The RBI meets in every two months to evaluate the situation of country's financial structure and take decision on key monetary policy measures, including interest rates. RBI MPC also announces changes in repo rate, the interest rate at which it lends money to other commercial banks.

RBI MPC consists of six members, including RBI Governor Sanjay Malhotra who will lead the meeting this time. Out of other six members in RBI MPC, three are external members appointed by the Centre for a four-year term.

RBI MPC Rate Cut Announcement

The RBI's MPC meeting, held under Governor Sanjay Malhotra's leadership, unanimously announced 25 bps repo rate cut to 6%. The RBI governor also informed that the RBI MPC has changed its stance from neutral to accommodative.

The standing deposit facility (SDF) rate under the liquidity adjustment facility (LAF) will now be adjusted to 5.75% whereas the marginal standing facility (MSF) rate and the bank rate was fixed at 6.25%.

In terms of inflation, the RBI said that there has been a significant improvement in inflation outlook. "Inflation is currently below the target, supported by a sharp fall in food inflation. Moreover, there is a decisive improvement in the inflation outlook. As per projections, there is now a greater confidence of a durable alignment of headline inflation with the target of 4 per cent over a 12-month horizon," noted RBI in its press release.

What is The Impact of Rate Cut on Gold Price?

Manav Modi, Senior Analyst, Commodity Research at Motilal Oswal Financial services Ltd, eliminated the possibility of RBI MPC repo rate cut's direct impact on gold prices. He also added that USD-INR movement is rather a more significant domestic variable which will impact domestic gold prices in India.

"One key domestic variable that does impact gold prices is the USDINR movement. This week alone, the rupee has depreciated by over 1%, lending support to domestic gold prices. Therefore, while the RBI meeting may have limited direct impact on gold, fluctuations in the USDINR could cause volatility in domestic pricing," explained Manav Modi.

A month before RBI rate cut announcement for April, the US Federal Reserve held the benchmark rate steady at 4.25-4.5% and signalled two reductions in 2025.

"Given the current setup, we expect the US Fed to cut rates to support growth and prevent any slowdown in the economy. A lower interest rate regime globally as well as domestically will support gold prices. We reiterate our view on gold prices to touch Rs 1 lakh/10 gm domestically, and $3100/oz globally," said Colin Shah, MD, Kama Jewelry.

Changes in lending rates announced by a central bank, whether it is RBI in India or the Federal Bank in the United States, are inversely proportional to the demand for gold and its price. Which means, when lending rates are reduced there is a rise in demand for gold, leading to a rise in their price.

According to news agency Reuters, lower rates makes bullion more attractive for investors as it yields no interest. "Rate cuts generally push gold prices higher because investors look for safe-haven assets when interest rates are low," Steven Conners, founder and president of Conners Wealth Management told CBS News.

Gold Price in India Today

The price of gold in India today increased nominally to Rs 82900 for 10 gram of 22 karat gold. Likewise, 24 karat gold rate per 10 gram increased Rs 710 to Rs 90440.

Gold rate in India edged higher from its four-week low mark on Tuesday. Gold rate in India witnessed a significant drop in the last three trading sessions as the investors continue to sell the bullion to recover the losses made from the weak performance of the stock market.

Commenting on the price of gold today, Manav Modi, added, "Gold prices inched higher in the early Asian trade rebounding form a three-week low as investors sought safety amidst escalating trade tensions between the world's two largest economies. Benchmark 10-year note yields rose to a one-week high reversing from recent low of ~4%, while dollar index stayed firm hovering around 103."