The Reserve Bank of India (RBI) will hold its key interest rate at 6.5% at least till the end of fiscal year 2024, predict top Indian economists. Expectation of a first rate cut is pushed back following a hawkish policy stance from the RBI, they said.
The central bank made it clear that they want to anchor inflation at 4 per cent and just keeping it below the upper band of the target range at 6 per cent is not enough, this signals RBI’s commitment to cut rates only when inflation softens to near 4 per cent target, opined economists.
RBI Governor Shaktikanta Das highlighted in the press conference after the monetary policy meeting that the central bank is not thinking about a pause at the moment, the call will be taken when inflation is at 4 per cent or below 4 per cent on a durable basis.
” With multiple tailwinds to inflation suggesting potential upside, RBI has to remain data dependent and till it is convinced that inflation is on its way down and sustainably so, policy rate easing would be farthest from their mind,” said Kunal Kumar Kundu, India economist, Societe Generale.
” We have been reiterating ‘higher for longer’ by the RBI and do not expect a rate cut to take place before Q2CY24, though we cannot rule out an even later easing move,” Kundu told ETCFO.
Similarly, Madhavi Arora, lead economist at Emkay Global Financial Services said ” Amid the changing external dynamics, the policy prerogative would ensure financial stability, which may possibly even precede inflation management in coming months and this policy was a small step towards the same. We maintain that the RBI will not explicitly cut rates in FY24, and will not precede the Fed in any policy reversal in CY24.”
Another economist, Sujan Hajra, Chief Economist & Executive Director, Anand Rathi Shares and Stock Brokers on same lines said “According to the inflation projection, the RBI anticipates persistent headline inflation even in FY25. According to the RBI’s inflation forecast, the real policy rate would be in the 100 to 150 basis point range in FY25. This is consistent with the central bank’s preference. As a result, a rate cut in the next 12 months is exceedingly unlikely.”
The governor expressed strong confidence that India will maintain strong growth and that inflation will continue to fall, albeit slowly. According to RBI’s estimates, inflation is expected to average 4.5 per cent in fiscal year 2025.
In fact the central bank is expecting inflation to fall below 4 per cent to a range of 3.8-5.2 per cent next fiscal, if the monsoon remains normal and there are no further policy shocks.
Commenting on a projection made by RBI at its recent MPC meeting for FY24, Kunal Kumar Kundu said, inflation and real GDP forecasts are 5.5 per cent and 6.2 per cent respectively. Inflation mostly in line but growth slightly lower. We expect a slowdown in real economic activity during H2FY24 with full year growth likely to be in the vicinity of 6.2 per cent YoY.
