The Reserve Bank of India’s Monetary Policy Committee is seen leaving the repo rate unchanged at 6.50% at the end of its three-day meeting, beginning on Wednesday.
While the domestic growth momentum remains robust, consumer price index-based inflation is still above the central bank’s target of 4%. This is likely to prompt the RBI to stay put on rates.
As far as the policy stance is concerned, a majority of economists expects the central bank to stick to its focus on withdrawal of accommodation. However, there are a few hoping that the central bank would soften its stance a bit.
“The MPC may keep the repo rate unchanged at 6.5% this week, but may soften its monetary stance to ‘neutral’ from ‘withdrawal of accommodation’. This would be consistent with the sustained drop in core CPI, softness in mass consumption and rapid fiscal tightening,” said Nuvama Institutional Equities.
Goldman Sachs expects the RBI to take comfort from the declining core inflation and slightly soften its hawkish forward guidance, but remain cautious given the upside risks to food inflation from weather shocks.
For the first three quarters of FY24, India’s GDP has grown by over 8%, and it is expected to have seen a similar growth even in the March quarter, according to Finance Minister Nirmala Sitharaman.
In view of this, some economists see the RBI increasing its projection on growth for FY25. The central bank had projected GDP to grow 7% in FY25.
Meanwhile, consumer price inflation eased slightly to 5.09% in February from 5.10 in January, but Goldman Sachs expects it to increase modestly to 5.2% in March on the back of a rise in the prices of vegetables and pulses.
What about rate cuts?
Most economists believe that rate cuts are still distant as inflation needs to come down to RBI’s desired level of 4%. “Even though rate cuts can be expected this year, the time is not yet conducive for a rate cut. The growth momentum in the economy is strong and FY24 is likely to register GDP growth of 7.6%, much ahead of the initial estimates. It is possible for India to achieve a growth rate of 7% in FY25. So, a rate cut is not warranted now,” said V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services.
Even the US Federal Reserve indicated that there was no need for the central bank to hit the pedal on reducing rates as yet.
So, given that there are no major surprises expected on Friday, the policy action is unlikely to impact the market or the current momentum significantly, Vijayakumar said.
“The market is presently influenced by retail investor enthusiasm, the sustained flows into the market via mutual funds and fundamental support from good GDP growth and decent corporate earnings,” he said.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
