MPC to keep repo rate unchanged at 6.50% in the next policy
The Reserve Bank of India’s six-member monetary policy committee (RBI MPC) will likely pivot towards repo rate cuts only after the Lok Sabha Elections in 2024, two-thirds or nearly 70% of 13 economists polled by FE said.
A majority of economists say the central bank will also keep its stance unchanged as “withdrawal of accommodation”. RBI’s MPC had first voted for a pause in repo rate hike cycle in April 2023 after hiking the benchmark rate cumulatively by 250 basis points (bps) since May 2022.
State Bank of India (SBI) Chief Economist Soumya Kanti Ghosh said while the US Federal Reserve (Fed) policy rate has remained unchanged in the recent months at 5.25%-5.5%, policymakers have highlighted that they will consider reversal of rates if the inflation eases further for the next four-five months.
Also Read
“Markets are expecting more aggressive Fed policy easing, with Fed funds futures now pointing to five quarter-percentage-point rate cuts next year. However, another rate hike is also not ruled out. We believe that RBI might not cut the rate before Q2FY25,” he said.
Aditi Nayar, chief economist at ICRA, shared similar views, saying she expects the central bank to be on an extended pause until the beginning of a shallow rate cut cycle of 50 bps-75 bps starting from Q2FY25. Accordingly, the RBI MPC will likely keep its repo rate unchanged at 6.50% during its forthcoming meeting between December 6-8.
HDFC Bank Principal Economist Sakshi Gupta said while the central bank will keep both repo and stance unchanged, the more important aspect to watch out for will be the MPC’s communication, which will likely be slightly more hawkish.
“They (MPC) will want to take comfort from the fact that growth continues to hold up even in the face of monetary tightening, which gives them room to continue with their hawkish stance to address inflationary risk,” Gupta said.
According to data from the Centre, India’s Q2FY24 gross domestic product (GDP) beat all estimates—including that of RBI’s 6.5% forecast–by a wide margin to grow at 7.6% in real terms, led by growth in manufacturing and investment segments.
Gupta said HDFC Bank expects full year GDP to grow 6.8% as against RBI’s forecast of 6.5%. She added that while the inflation print in October was below 5%, inflation figures of November and December will be higher as “POT” inflation which includes potatoes, onions and tomatoes have started rising in November, primarily led by rise in onion prices. Further, cereals and pulses inflation momentum in October also remained very strong.
Gaura Sengupta, India Economist at IDFC First Bank shared similar views, saying while the bank does not expect the RBI to revise their FY24 CPI inflation estimate of 5.4%, risks from food inflation persists. “Daily food prices show continued upward pressure with more than 50% of the food basket by weight seeing 6%YoY or higher inflation, spread-over cereals, pulses, fruits, milk etc,” she said.
“Moreover, in November vegetable prices have risen once again led by Onions. CPI inflation is expected to remain above 5% till Q1FY25, which is higher than 4%-target,” she added. India’s headline retail inflation, as measured by the Consumer Price Index (CPI) fell to a 4-month low of 4.87% in October.
DBS Bank ED and senior economist Radhika Rao said while she does not anticipate any surprise non-policy tweaks, market participants are expected to seek clarity on policymakers’ intentions or preferred timing of open market operation (OMO) bond sales, along with related commentary on liquidity conditions.
Source:financialexpress.com