The RBI MPC meeting commenced on April 3 and the six-member committee headed by RBI Governor Shaktikanta Das, will announce its decision on India’s benchmark interest rate at 10 am on April 5.
As the Reserve Bank of India’s Monetary Policy Committee enters its second day of its first meeting of financial year FY2025, today, experts and economists said that the central bank is expected to keep its repo rate unchanged at 6.50 per cent, continuing its stance of ‘withdrawal of accommodation’. Rahul Bajoria, MD & Head of EM Asia (ex-China) Economics, Barclays, said, “The RBI continues to enjoy widening policy optionality, amid high growth, falling core inflation, a manageable credit cycle and a small current account deficit. These factors point to expanding space to cut rates, if needed. But with no urgency to act, we see rates and the stance remaining on hold in April.”
The RBI MPC meeting commenced on April 3 and the six-member committee headed by RBI Governor Shaktikanta Das, will announce its decision on India’s benchmark interest rate at 10 am on April 5. The review by MPC will provide a foreword of the course that the central bank will adopt for the new financial year as it seeks to strike a fine balance between sustaining growth and inflation under the 4 per cent target. Shishir Baijal, Chairman and Managing Director, Knight Frank India, said, “The RBI is likely to continue with a rate pause at its first MPC meeting for FY25. Even though core and the wholesale inflation has significantly eased but the volatility in food prices continue to impinge consumer sentiment. Thus, keeping the headline inflation above the RBI target level of 4 per cent.”
Further, according to a poll of 13 economists by Financial Express, the MPC is likely to spring any positive surprises both on interest rates or policy stance. Nearly 50 per cent of the economists expect the central bank to cut rates from the third quarter of the current fiscal while 25 per cent expect rate cuts from the second quarter. Most economists expect the central bank to retain its policy stance of withdrawal of accommodation as any change in stance could send a signal of a rate cut, sooner than later and lead to unnecessary exuberance in the market.
Furthermore, here are expectations on the policy announcement, by experts and economists:
Dr Manoranjan Sharma, Chief Economist, Infomerics Ratings
In view of the evolving growth-inflation dynamics and the need to provide an impetus to the process of economic growth, we do not expect any change in the key policy rates and the status quo to be maintained. The policy rate cuts may happen in a gradual and calibrated manner from June 2024 onwards because of the downward trending inflation trajectory and the tradeoff between growth and inflation. There is a distinct possibility of 75 basis points cut in the policy rate in FY 25. Accordingly, going forward in this overarching macroeconomic setting, the policy stance may change to neutral in the April 2024 policy.
Despite uncertainty on the external front and exacerbated global tensions in different parts of the world, including Palestine, Ukraine, Russia, etc., the tone and tenor of the policy is likely to be dovish because of the downward bias on the interest rate and a spike in crude oil prices looking unlikely. Our sense is that the GDP is likely to be in the range of 6.8- 7.2 per cent though the projection for FY24 is 7.6 per cent.
Aditi Nayar, Chief Economist, Head – Research & Outreach, ICRA Ltd
There shall be a status quo on rates and stance in the upcoming April 2024 MPC meeting. ICRA believes that the policy stance is unlikely to be changed before the Aug 2024 MPC review, until there is visibility on the monsoon turnout as well as on the sustenance of the growth momentum and the US Fed’s rate decisions. Consequently, the earliest rate cut is only likely in the Oct 2024 meeting, unless growth posits a negative surprise in the intervening quarters, amid a shallow rate cut cycle limited to 50 bps at best.
Dr VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services
The MPC is unlikely to act on policy rates on April 5th. Even though rate cuts can be expected this year, the time is not yet conducive for a rate cut. The growth momentum in the economy is strong and FY24 is likely to register GDP growth of 7.6 per cent, much ahead of the initial estimates. It is possible for India to achieve a growth rate of 7 per cent in FY25. So, a rate cut is not warranted now.
Deepak Agrawal, CIO – Debt, Kotak Mahindra AMC
RBI has undone the stealth tightening by actively managing the liquidity in the system and the average call rates are now close to the repo rate. Strong growth in FY24 and strong growth projections for FY25, gives leeway to RBI to wait for actual monetary easing in advanced economies. With 1 year forward real rates upwards of 2 per cent, based on FY25 inflation forecast, there is a case to change the monetary policy stance to “neutral”, since the stealth tightening undertaken from second quarter of FY 2024 being undone, RBI may keep rates unchanged and continue with “withdrawal of accommodation” monetary policy stance.
Ranen Banerjee, Partner and Leader Economic Advisory, PwC India
The overall strong GDP growth in Q3, moderating core inflation going below 3.5 per cent, global increase in crude prices, increased logistics costs and the escalating situation in geopolitical conflicts would be the key issues for deliberation. The headline growth number is strong but private consumption has printed weak at 3.5 per cent in Q3. While government capex has been strong, private capex is yet to take off. While some of the central banks in emerging economies have started to cut policy rates, the central banks of major economies are still unsure. The yield differential between India and US has narrowed putting pressure on fund flows. The rupee is cushioned owing to the bond index related flows anticipated from Q2 and is providing comfort despite the narrowing of the yields. With the cut in retail rates of fuel and predictions of above normal monsoons, it will have a sobering impact on the inflation and inflation projections. In balance, while the MPC is most likely going to be in the pause mode again, there is a small window opening up on the policy rate front owing to which we are likely to have a few members of the MPC voting for a rate cut but they will not be in majority.
Shishir Baijal, Chairman and Managing Director, Knight Frank India
The RBI is likely to continue with a rate pause at its first MPC meeting for FY25. Strong growth would continue to provide adequate support for the RBI to keep policy rates unchanged for the next few months. The focus for the RBI is likely to be on the liquidity management with continuation of withdrawal of accommodation to keep inflation well anchored and bring it under 4 per cent. Stable rates will continue to support the housing market which has continued to remain upbeat. India’s housing market is currently witnessing an upcycle. Consumers have already factored in elevated interest rates and are still actively engaging in home purchases. However, the affordable housing segment is experiencing sluggish residential sales; a well-timed rate cut could be supportive of this segment.
Rahul Bajoria, MD & Head of EM Asia (ex-China) Economics, Barclays
Not much has changed since the last MPC meeting in February, with the RBI overseeing an economy enjoying high growth and falling core inflation, amid stable macro stability parameters. Against this backdrop, we expect the MPC to keep the repo rate on hold at 6.5 per cent, and maintain the monetary policy stance at a “withdrawal of accommodation”. The RBI has dialled back its hawkishness on liquidity management since the February meeting, allowing weighted average call rates to drift lower.
Domestic growth data remains robust, and we expect the RBI to increase its GDP growth forecast for FY24-25 to above 7 per cent, representing only a small slowdown from around 8 per cent in FY23-24, even though momentum in high-frequency economic activity indicators has been more mixed recently.
Garima Kapoor, Economist & Senior VP, Elara Capital
We expect MPC to remain on a pause in April policy amid strong GDP growth and continued focus on the 4 per cent headline inflation target. The risks of food inflation remain active and as such MPC may remain cautious. More importantly, we do not expect the MPC to cut rates before the Fed’s rate cut cycle begins. We expect MPC to cut repo rate by Q3FY25; as two factors are likely to align by then 1) India headline inflation is expected to be closer to 4 per cent and 2) Fed’s rate cut cycle may have commenced.
With respect to GDP growth, the Q3FY24 GDP growth and full year growth, RBI will look to upward revise the FY24 as well as FY25 GDP growth estimate. We expect the inflation estimate to remain unchanged.
Shraddha Umarji, Economist Institutional Research, Prabhudas Lilladher
RBI will likely keep the repo rate unchanged at 6.5 per cent. Stance will also be unchanged for better transmission of the delivered rate hikes (of 250 bps so far). Right now, food inflation is high so the biggest risk going ahead is monsoon. IMD has forecast a normal monsoon for the year, so timely kharif sowing can bring down food inflation. Until then, RBI is unlikely to cut interest rates. The central bank will also take cues from what the Fed and ECB are doing when it comes to rates. So it is unlikely that rate cuts will happen before October. However, RBI could change its stance to ‘neutral’ in June or August. Meanwhile, GDP growth for FY25 might be revised upwards to 7.3- 7.4 per cent from 7 per cent earlier as all macroeconomic data has been robust.
Sarbartho Mukherjee, Associate Economist, CareEdge
RBI is expected to maintain the status quo on both rates and stance. The overall growth trajectory has remained strong, with an anticipated GDP growth of 7.6 per cent in FY24 and 7 per cent in FY25. Despite a decline in core inflation, headline inflation has persisted above 5 per cent, primarily due to elevated food prices. While the current rabi sowing surpasses last year’s acreage, the prospect of a normal monsoon in the upcoming year is pivotal for mitigating food price pressures, particularly amidst lower reservoir levels. The RBI will thus be inclined to adopt a cautious approach, preferring to assess the evolving risks associated with food inflation before making any decisions. Given that the RBI Governor has been highlighting the aim of getting inflation to 4 per cent on a durable basis, the policy rates are likely to be kept on hold in the upcoming policy meeting, with no change in stance.
Parijat Agrawal, Head – Fixed Income, Union Mutual Fund
We do not expect any change in the policy rate, but a probable explicit or implicit change in stance cannot be ruled out. RBI may acknowledge that core inflation is trending down. We expect growth projections to continue to remain robust. RBI is expected to touch upon smoothening of liquidity conditions. Systemic liquidity shall improve going ahead.
Kaushik Mehta, Founder & CEO, Ruloans Distribution Services
As the RBI is anticipated to maintain a cautious and potentially assertive stance, the impact extends beyond home and personal loans to various sectors like real estate and vehicle loans. With interest rates expected to remain unchanged until at least the first quarter of the financial year, stability prevails in the lending landscape, offering assurance to borrowers. Stable interest rates provide a conducive environment for real estate investment and development, sustaining demand and growth in the housing sector. Similarly, in vehicle loans, unchanged rates ensure stability and affordability for consumers, supporting demand and growth in the automotive industry.
Overall, the RBI’s cautious stance on interest rates reflects its commitment to managing inflationary pressures while ensuring economic stability. This stability influences not only home and personal loans but also benefits real estate and vehicle loans, fostering continued growth and investment in these sectors.
Source:financialexpress.com