The Reserve Bank of India (RBI) is likely to keep interest rates unchanged at the August 8 meeting and retain the monetary policy stance of withdrawal of accommodation amid food inflation concerns, according to Goldman Sachs.
“With 1H CY24 headline inflation still above the RBI’s target, and upside risks to food inflation going forward, we maintain our view that the RBI will keep the policy repo rate unchanged at 6.50% at the Aug 8 policy meeting, with a 4:2 vote in favor, sound relatively optimistic on growth, acknowledge the decline in core inflation, but continue to reiterate the commitment to the 4% headline inflation target,” said Goldman’s Santanu Sengupta.
Elevated and broad-based food inflation has kept H1 CY24 headline inflation near 5% YoY, even as core inflation continued to decline.
“Going forward, even though a high base last year is going to pull headline inflation down towards 4% in Q3, there are upside risks to food inflation due to an uneven monsoon. The banking system liquidity has eased over the last month, which along with the RBI’s proposed changes to the liquidity coverage ratio (LCR) for banks have softened short-term rates, and we continue to recommend going long 2Y IGBs,” Sengupta said.
Earlier in the week, the Bank of Japan raised the short-term policy rate to 0.25% from 5.25%. The world’s most powerful central bank, the US Federal Reserve, kept rates unchanged but signaled that a rate cut is possible in September.
