The Reserve Bank of India (RBI) is set to announce its monetary policy next week after the conclusion of the meeting of its Monetary Policy Committee (MPC) from June 5-7.
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The RBI’s MPC is widely expected to hold the benchmark repo rate in its upcoming policy, while it may cut interest rates just once this year, most likely in October-December rather than next quarter, according to the economists polled by Reuters on the timing of the first move. However, there was no clear majority among economists.
All but one of 72 economists in a May 17-30 Reuters poll expected the RBI to hold the repo rate at 6.50% at its June meeting, just a few days after election results are due.
Nearly half of economists surveyed, 33 of 71, predicted that the RBI will opt for first repo rate cut in Q4 2024, giving a median forecast of 6.25%. Earlier in April, most economists expected the first cut in Q3.
By end-2024, 33 of 71 said rates would be 25 basis points (bps) lower at 6.25%, 15 said 6.00%, and five expected 5.75% or lower. The remaining 18 forecast no rate change this year, Reuters reported.
Those predictions come despite widespread expectations inflation will stay above 4%, the mid-point of the RBI’s preferred band of 2%-6% range, this year and next.
India’s inflation in April was at 4.83% and is expected to drop to 4.00% next quarter before rising in subsequent quarters, the poll showed, averaging 4.5% this fiscal year and next.
Meanwhile, India’s economic growth was forecast to average 6.8% this fiscal year and 6.6% next.
In its Annual Report for 2023-24 released on Thursday, RBI projected India’s GDP growth at 7% for the currency fiscal year, underpinned by a sustained strengthening of macroeconomic fundamentals.
With a growing likelihood that many major central banks, including the US Federal Reserve, delay cutting interest rates, there is little upside for the RBI to step in front.India is the fastest growing major economy in the world with near-8% growth and with above-trend inflation there is also little urgency for the RBI to begin cutting rates unless concerns emerge about a slowdown, Reuters reported.
“Taking a leaf out of the global monetary policy playbook, the RBI too is likely to err on the side of caution and adopt a significantly restrained approach to rate cuts,” said Aditi Gupta, an economist at Bank of Baroda.
“Given how the domestic growth and inflation dynamics have been placed, we do not foresee a possibility of the RBI preceding the Fed,” she added.
While a smaller number of forecasters provided rate views well into next year, median forecasts showed no further cuts beyond 6.00%.
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“With the still-robust growth outlook creating no urgency to cut rates and inflation still above target, driven mainly by food … we do not expect the majority of the MPC to see a reason to cut before December,” Shreya Sodhani of Barclays noted.
