IANS | 08 Feb, 2024
With the Reserve Bank of India’s (RBI) Monetary Policy Committee
(MPC) deciding to retain the repo rate at 6.5 per cent, economists are
of the view that a rate cut may not happen any time soon or at least for
next six months, said senior economists.
In a 5:1 decision, the
MPC which met on February 6-8, decided to hold the repo rate -- the rate
at which the RBI lends to banks -- at 6.5 per cent.
The RBI MPC also decided not to change its stance to 'neutral’ from 'withdrawal of accommodation’.
“It
was no surprise that RBI MPC decided to keep the status quo on the
interest rates for the sixth consecutive time. However, RBI continued to
sound hawkish as against the market expectations and has not provided
any indication of the timing of the change in monetary stance from
withdrawal of accommodation,” said Suman Chowdhury, Chief Economist and
Head – Research, Acuité Ratings & Research.
“Given the tone of
the MPC statement and the expectation of growth buoyancy, we believe
that the likelihood of any rate cut by RBI has significantly reduced
over the next six months,” Chowdhury added.
The RBI MPC will not
cut the repo rate ahead of the US Federal Reserve, said Madhavi Arora,
Lead Economist, Emkay Global Financial Services.
“We understand
that shifting debates on global narratives requires the RBI to be
flexible as well. We have long maintained that the RBI's policy has been
somewhat pegged to the Fed, specifically in the last two years, even as
it formally targeted inflation. The swift turn of tone and action
pivots of the RBI in the last two years have been influenced purely by
global narrative. We do not see RBI preceding the Fed in rate cuts,”
Arora said.
Predicting that RBI will remain cautious owing to high
food inflation, CARE Ratings’s Chief Economist Rajani Sinha said:
“Healthy economic growth gives room to the Central Bank to maintain
status quo for some more time.”
“However, in the second half of
the year, as domestic inflationary concerns recede and the US Fed starts
cutting rates, we can expect a shallow rate cut by RBI. On the
liquidity front, RBI will continue to intervene through appropriate
tools as required,” Sinha said.
Sujan Hajra, Chief Economist &
Executive Director, Anand Rathi Shares and Stock Brokers, was also of
view that rate cut may not happen any soon and RBI will be on wait and
watch mode.
“With RBI's inflation projection of 4.5% for FY25, any
expectations of cuts coming in the current year become unlikely. We
think the progress in food prices will be the key monitorable for RBI's
tone in the upcoming policy. Like other central banks, higher growth for
the current and next year gives RBI more headroom to be on a
wait-and-watch mode,” Hajra said.
As to the 7% economic growth
rate for FY25 stated by RBI Governor Shaktikanta Das, Chowdhury said:
“They have significantly upgraded their growth prospects for the next
fiscal to 7.0%, reflecting that there are minimal concerns on economic
growth at this time.”
“RBI’s assessment on global growth also
appears to be positive versus last year and it also believes that
central banks are unlikely to resort to a pivot within a short period.
Our outlook on the domestic growth prospects are moderate with a base
forecast of 6.3% for FY25, given the visible weakness in the private
consumption growth which is estimated at 4.4% in FY24 in the NSO
estimates,” Chowdhury said.
“On the inflation front, the base
forecast for headline CPI in FY25 is set at 4.5% which in our opinion
has significant upside risks if the growth really maintains such a high
level of momentum and if there are even moderate risks in the monsoon
behavior,” Chowdhury added.