The Reserve Bank of India’s Monetary Policy Committee (MPC) will hold its first meeting for the new financial year (FY) 2024-25 from April 3 to April 5. Analysts have predicted that the policy panel is widely expected to keep the repo rate unchanged for now and maintain the ‘withdrawal of accommodation’ policy stance.
After increasing the repo rate by 250 basis points (bps) to 6.5 per cent between May 2022 and February 2023, the central bank has maintained the repo rate at 6.5 per cent since April 2023.
In the last meeting in February, the central bank’s MPC kept the benchmark interest rate unchanged at 6.5 per cent citing inflationary concerns. Five members including Dr Michael Debabrata Patra, Shashanka Bhide, Ashima Goyal, and Rajiv Ranjan voted for the status quo on the policy rate for the sixth consecutive time, while Jayanth R Varma voted to reduce the policy repo rate by 25 basis points.
The meeting is scheduled to start at 10 am on Wednesday. The RBI will announce the review of the policy on April 5, i.e. Friday.
Most analysts have said that the central bank will keep the repo rate unchanged again, but has also said that it will be cautious about continuing risks to food inflation that could affect consumer price index (CPI) or retail inflation.
Earlier in the day, the State Bank of India’s research report stated that rate cuts are not likely in the upcoming MPC. According to the SBI, the RBI is expected to cut rates only in the third quarter of FY25.
“Strong evidence of emerging economy central bank rate actions are predicated by advanced economy central bank rate actions…India is an exception…first RBI cut in Q3FY25…such rate cut cycle likely to be shallow,” stated SBI in its report, adding that the stance should continue to be withdrawal of accommodation.
“The upward revision in the National Statistical Office’s gross domestic product (GDP) growth estimates for Q1-Q2 FY2024, three successive quarters of 8 per cent plus GDP expansion, and the CPI (consumer price index) print of 5.1 per cent for February 2024, suggest the status quo on rates and stance in the upcoming April 2024 meeting,” said Aditi Nayar, chief economist, ICRA.
“ICRA believes the policy stance is unlikely to be changed before the August 2024 MPC review, until there is visibility on the monsoon turnout as well as the sustenance of growth momentum and the US Fed’s rate decisions,” she said.
“Both repo rate and stance (are) likely to remain unchanged under base case scenario; but can’t rule out the possibility of a change of stance to neutral, given past evidence of the central bank surprising with its decision, particularly in April,” said Kaushik Das, Chief Economist, India & South Asia, Deutsche Bank.
“If RBI indeed changes its stance to neutral, the accompanying statements and comments are expected to be hawkish. On the other hand, if the central bank maintains the ‘withdrawal of accommodation’ stance — as a majority of the market participants expect — the commentary may be less hawkish,” Das said.
Last week, foreign brokerages and banks, Goldman Sachs, Barclays and Morgan Stanley, also stated that the MPC may keep the repo rate on hold in the first half of the fiscal.
Goldman Sachs Research and Morgan Stanley Research see the RBI going in for two rounds of 25 basis points cut in the second half of this calendar year.
Goldman Sachs Research has forecast one 25 basis points cut each in July-Sep 2024 and another in the Oct-Dec 2024 quarter this fiscal year.
Santanu Sengupta, Chief India Economist, Goldman Sachs India said, “With 1HCY24 headline inflation still above the RBI’s target, we maintain our view that the RBI will keep the policy repo rate unchanged at 6.5 per cent at the April 5 meeting, sounding optimistic on growth, acknowledge Jan-Feb average core inflation at 3.5 per cent, but continue to reiterate the commitment to the 4 per cent headline inflation target”.
Upasana Chachra, Chief India Economist, Morgan Stanley said in a recent research note that it sees RBI go in for two rate cuts of 25 basis points each, but pushed the first rate cut forward from its earlier expectation of June to August/September.
“We further expect the RBI to retain its monetary policy stance (as signalled by the comment that they will ‘remain focused on the withdrawal of accommodation to ensure that inflation remains within the target going forward, while supporting growth’, Chachra said.