~Samriddhi Singh Mahar
With the announcement by RBI Governor Shaktkanta Das, that the repo rate will remain unchanged for the 11th consecutive time, economists see the decision to maintain the policy rate at 6.5% while implementing a 50-bps CRR cut as RBI prioritising the management of liquidity, while supporting growth without compromising inflation stability.
Economists believe that the reserve bank is being cautious in its approach, citing external vulnerabilities and evolving growth-inflation dynamics.
While some foresee a potential rate cut in early 2025, contingent on economic trends, others highlight the importance of prudence in the central bank’s decision making amid global uncertainties.Here’s what they said:
Sakshi Gupta, Principal Economist, HDFC Bank
Banking system liquidity has come under pressure in recent days on account of tax outflows, foreign outflows and higher currency leakage. We expect the RBI to continue providing more “durable” support for liquidity through various measures including longer-duration fine tuning operations, Open Market Operations, and sterilising its FX interventions. A February rate cut remains on the table, especially if growth momentum fails to pick-up meaningfully over the coming weeks. That said, a rise in global uncertainty and pressure on the rupee or domestic inflation could nudge the RBI to delay any rate cuts to the April policy – preferring prudence and patience over pre-emptive action.
Upasna Bhardwaj, Chief Economist, Kotak Mahindra Bank
The RBI delivered in line with our expectations. While retaining its focus on last mile disinflation being achieved the RBI has taken note of the tightening durable liquidity and hence delivered the CRR cut. We see room for a 25 basis points repo rate cut in February with much dependent on the downside risk to growth which we foresee. Further disinflationary trends and global environment will also be key.
Indranil Pan, Chief Economist, YES BANK
The RBI assesses that inflation too will moderate to target going forward, but still wants to remain watchful of the evolving trends. Thus, the message appears clear, the RBI will not move the repo rate lower till there is absolutely confidence in inflation moderating to target. Given that we are at the inflection point for both growth and inflation, February remains live. The critical factor to watch out is the Trump policies after he comes into office and its impact on inflation and currency. Probably providing itself flexibility to intervene in the currency markets, the RBI has moved ahead with a 50-bps reduction in CRR. We now anticipate the first cut in February but can be delayed if currency markets were to turn adverse or the anticipated softening in domestic inflation does not materialize.
Achala Jethmalani, Economist, RBL Bank
MPC maintains a cautious pause and the commentary suggests that the MPC’s policy decisions will be determined by domestic growth-inflation dynamics while considering the impact monetary policy outcomes in the advanced economies. The RBI Governor explicitly stated in the context of ‘follow the Fed’. Given India’s growth-inflation dynamics, we expect a rate-cut to possibly come through in Q4FY25 with a change in policy stance by December 2024. The progress of SW monsoon and the July budget will be critical inputs in the August policy.
Anitha Rangan, Economist, Equirus
Given a more benign forecast of 4.5% inflation for Q4, there is a good chance of a reduction in repo rate in the next policy.
The RBI has addressed concerns on liquidity by lowering the CRR which will coincide with the advance tax flows and quarter end requirements. This will ensure stable liquidity and bond yields for the month. The RBI has also sounded assuring on the forex side given the reserves which can buffer against any shocks. The market reaction in terms of bond yields and stock indices have been largely neutral to these announcements. We can expect an impact on yields once the CRR funds get released in the market.
