The Reserve Bank of India (RBI) may maintain the status quo in the next Monetary Policy Committee meeting next month, Murthy Nagarajan, Head – Fixed Income, Tata Asset Management, said. The next Monetary Policy Committee (MPC) is scheduled to meet between April 3 and April 5.
Since the April MPC meet in 2023, the central bank has kept the repo rate unchanged at 6.5 per cent, after raising it by 250 basis points (bps) in May 2022. After the February’s MPC meet, the central bank maintained the repo rate at 6.5 per cent for the sixth consecutive time.
Nagarajan of Tata Asset Management told Moneycontrol that the central bank’s projection for Consumer Price Index (CPI) inflation for next year is 4.5 per cent, assuming a normal monsoon. He said the RBI is expected to wait for Indian Meteorological Department’s forecast before forming a view on food inflation.
“CPI inflation for January and February continues to be above 5 percent levels, 1 percentage point higher than the RBI target of 4 percent. Higher inflation is due to food prices flaring up due to EL Nino conditions; core inflation, which excludes food and fuel items, is at 3.3 percent for February 2024. The RBI projection of CPI inflation for next year is 4.5 percent, assuming a normal monsoon. The RBI is expected to wait for the Indian Meteorological Department’s forecast before forming a view on food inflation. The RBI Governor has stated that the last mile of bringing CPI inflation to the target of 4 percent is the toughest. We expect the RBI to maintain the status quo in the April policy due to strong growth,” Nagarajan said.
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Earlier, the State Bank of India said that the central may go for the first cut between June 2024 and August 2024.
“We expect the RBI to continue the pause stance in upcoming policy…First rate cut on table from June ‘24… Aug ‘24 looks the best bet now,” it said in a report.
CRISIL’s Chief Economist Dharmakirti Joshi also said the RBI-led MPC may look at cutting rates in the June 2024 MPC meeting. “RBI will be in no rush to cut rates and we expect no cuts in April MPC. The earliest would be in June,” Joshi said.
Joshi said that RBI would look at changing its stance to neutral from the withdrawal of accommodation. “They will change their stance to neutral. Expect a change of stance first and rate cut later,” Joshi said.
Nomura also predicted that 100 bps of cumulative rate cuts would start from August 2024. “We expect the pause to extend for now. The monetary policy pivot will follow the liquidity pivot and one-year inflation projection suggests that the real policy rate is around 1.8 percent,” Nomura said in a review note.
Barclays and Morgan Stanley also predicted rate cut cycle to begin from June 2024 onwards. “We expect rates to be on hold and build shallow rate cut cycle from June onwards. Inflation is likely to moderate to 5.1 percent in H1CY24 and 4.1 percent in H2CY24,” said Morgan Stanley analysts.
