The Reserve Bank of India on Friday decided to retain the repo rate at 6.5 per cent, thereby maintaining a pause on its rate-hike cycle for the seventh consecutive time.
The RBI Governor Shaktikanta Das forecasts the India GDP growth rate at 7 per cent for FY25, while Consumer Price Index (CPI) inflation has been projected at 4.5 per cent for fiscal 2025.
Top economists believe that the policy decision by the Reserve Bank of India was on expected lines. They said that the uncertainty on food inflation remains a worry. Some economists continue to expect that the next rate cut will not be before September 2024.
Here’s what the Economists said :
Indranil Pan, Chief Economist at YES BANK
The policy was boring from the perspective of the decisions made with respect to rates and stance. The tone of the policy remains balanced, and as was also seen in the February policy, RBI seems to remain more confident of growth conditions than that with inflation trajectory. The perspective on growth actually remains positive with expectations of continued firmness in urban demand, a likely recovery in rural demand and also an expectation of a pickup in investments. 1-year ahead Consumer confidence has also improved.
The inflation concerns for the RBI continue to remain hinged on the food inflation outlook. However, there are indications in the statement of an impending worry from the cost push items – specifically from oil and commodity prices that need to be tracked. With an unchanged inflation projection for FY25 at 4.5%, with growth conditions improving and with US Fed also pushing out its rate cut cycle, we think that the RBI might only be in a position to cut rates either in the August policy or even later.
While one can remain confused on the timing of the cut, the confidence is on the fact that the rate cutting cycle in India will be shallow in FY25.
Abheek Barua, Chief Economist and Executive Vice President, HDFC Bank
Given the recent global resilience in economic activity, there has been a tendency to keep monetary policy tight to take on the last mile challenge on inflation by global central banks. The RBI seems to be moving in lock step with that. The central bank remained optimistic on growth – pegging it at 7% for FY25 – and said this provides space for monetary policy to remain tight and focus on inflation. Consequently, the chances of a rate cut have been pushed forward into the second half of FY25.
The RBI also reiterated its preference for a stable rupee and therefore significant depreciation due to recent global volatility seems unlikely. On the other hand, the RBI also signalled that it has enough appetite for building FX reserves and therefore expected rupee appreciation in the coming quarters (due to bond inflows among other things) could also face resistance.
On the regulatory front, the announcement of a review of the LCR framework considering the volatility in deposits due to the 24*7 transfer facility is a welcome step. Details on the same are awaited.
Achala Jethmalani, Economist, RBL Bank
A status-quo policy on all fronts. With growth-inflation projections for the fiscal year unchanged, with minor quarterly revisions, is a good signal as it indicates that the economic situation is panning out as envisaged. The MPC remains cognizant of food related upside risks to inflation trajectory. We see a cautious pause be the case till September 2024.
Upasna Bhardwaj, Chief Economist, Kotak Mahindra Bank
The MPC on expected lines maintained status quo on rates and stance. While low core inflation provides comfort, the uncertainty on food inflation remains a worry. Further, the higher US yields, higher oil prices and other commodities along with possible delay in Fed’s rate easing cycle will keep the MPC wary. Accordingly, we do not see much scope for any rate easing until Q2FY25. Earliest possibility of rate easing can emerge in Q3FY25.
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