Foreign Brokerages, Banks Anticipate MPC Maintaining Repo Rate At 6.5% On 5 April

Foreign brokerage firms and banks anticipate the Monetary Policy Committee (MPC) to maintain the repo rate at 6.5 per cent during the forthcoming meeting on 5 April. They also predict that the MPC will uphold its monetary policy stance of 'withdrawal of accommodation.'

Despite the Central Bank having ample room to lower interest rates further, these institutions foresee the MPC opting to keep the repo rate steady. Goldman Sachs Research and Morgan Stanley Research project two rounds of 25 basis points cuts by the RBI in the latter half of the current calendar year.

Given that inflation has largely remained within the central bank's comfort zone, the RBI has refrained from adjusting the policy repo rates since March 2023. Santanu Sengupta, Chief India Economist at Goldman Sachs India, maintains that the RBI will likely maintain the policy repo rate at 6.5 per cent during the 5 April meeting, expressing optimism about growth.

Goldman Sachs Research forecasts one 25 basis points cut each in the third and fourth quarters of 2024. Meanwhile, Rahul Bajoria, MD & Head of EM Asia (ex-China) Economics at Barclays, notes little change since the last MPC meeting in February, with the economy showing high growth and decreasing core inflation amidst stable macroeconomic parameters.

In light of these factors, it's expected that the MPC will maintain the repo rate at 6.5 per cent and uphold the monetary policy stance as 'withdrawal of accommodation.' Bajoria observes a dialing back of hawkishness on liquidity management by the RBI since the February meeting.

Upasana Chachra, Chief India Economist at Morgan Stanley, suggests that the RBI may implement two 25 basis points rate cuts, with the first cut likely to be pushed forward from June to August/September. She also anticipates the RBI to retain its monetary policy stance focused on withdrawing accommodation while ensuring inflation remains within target.

Morgan Stanley draws parallels between the current economic cycle and that of 2003-07, expecting real rates to track about 150 points this cycle. Chachra emphasises the importance of RBI's cautious approach to maintaining positive real rates in the domestic economy amidst rising uncertainties and tighter global financial conditions.

Barclays, noting robust domestic growth data, expects the RBI to revise its GDP growth forecast for FY24-25 to above 7 per cent. Bajoria highlights the expanding policy options available to the RBI but sees no urgency to act, projecting rates and the stance to remain unchanged in April.

Liquidity conditions have eased in recent weeks, with ongoing balance of payments surpluses and pre-election spending expected to keep liquidity conditions in check, Bajoria adds.