Rate Cuts Expected When Headline Inflation Nears 4.5%, Say Experts
Experts also say that the bond yields will remain range bound with a slight easing bias for now
In line with market consensus, the Monetary Policy Committee (MPC) on Friday has kept the key policy rates unchanged for the eighth consecutive time amid global uncertainty and domestic inflation concerns. The growth outlook is projected to be robust at 7.2 per cent for the financial year 2024-25 (FY25) while the inflation is projected at 4.5 per cent.
Alok Singh, Group Head-treasury, CSB Bank said, “The status quo in the policy stance was warranted looking at the global and local factors. We expected some measures on Banking system liquidity but it seems the Reserve Bank of India (RBI) may be waiting to see the open market operations (OMOs) through before taking any other measure.”
The MPC, in a majority decision with four out of total six members in a consensus, opted to keep the repo rates constant. Along with this, the standing deposit facility (SDF) rate also remains at 6.25 per cent, while the marginal standing facility (MSF) rate and the bank rate remain at 6.75 per cent.
“This stability supports the real estate market, making housing more affordable and boosting consumer confidence. It enables informed investment decisions, promoting sector growth and contributing to India's economic prosperity,” said Manju Yagnik, Vice-chairperson, Nahar Group and Senior Vice-president, Naredco Maharashtra.
RBI Governor Shaktikanta Das, in his post-policy press conference, has emphasised on the importance of a balanced and effective approach towards monetary policy. “From a market perspective, the policy turned out to be a relative non-event, being on expected lines. Bond yields remained largely range-bound. The market is also focused on the contours of the new government being formed. Expect bond yields to remain range bound with a slight easing bias for now," said Mahendra Kumar Jajoo, Chief Information Officer (CIO), Fixed Income, Mirae Asset Investment Managers.
The RBI revised its growth projections for the FY25, forecasting a GDP growth rate of 7.2 per cent. The quarterly growth projections stand at 7.3 per cent for Q1, 7.2 per cent for Q2, 7.3 per cent for Q3, and 7.2 per cent for Q4. The central bank’s governor highlighted that the risks to the growth outlook are evenly balanced.
“Confident in its inflation management efforts, the Reserve Bank of India (RBI) aims to move closer to its 4 per cent target without disrupting liquidity,” said Manish Chowdhury, Head of Research, StoxBox. Notably, RBI's Das reiterated the MPC's commitment to withdrawing accommodation gradually to ensure that inflation aligns with the targeted range while supporting economic growth.
Rohit Garg, Co-founder and Chief Executive Officer (CEO), Olyv (formerly SmartCoin) said, “The Indian government's pursuit of reducing the fiscal deficit, supported by RBI dividends, further reinforces economic stability. Despite revising the GDP forecast for FY25 to 7.2 per cent, the RBI opted to retain the consumer inflation forecast unchanged.”
The decision to keep the Repo Rate unchanged signals the RBI's cautious approach towards balancing the objectives of controlling inflation and supporting economic recovery. Meanwhile, Sanjeev Agrawal, President, PHD Chamber of Commerce and Industry, said, “Favourable inflation trajectory and resilient economic growth will create scope for a repo rate cut in the coming times. We expect a repo rate cut as and when headline inflation softens around 4.5 per cent and stabilising between 4 to 4.5 per cent.”
Agrawal added that it is highly appreciable that RBI is strategising to become a model central bank for the global south in the coming times.
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