The Monetary Policy Committee (MPC) meeting is scheduled to be held between 3 to 5 April 2024. The MPC has been steadfast in maintaining high-interest rates and has continued with this stance for several reviews now, even after withdrawing accommodation. However, due to a decline in inflation and the need to support economic growth, many experts are anticipating a possible shift in the MPC's stance towards neutrality in rates.
“We expect the RBI MPC to keep the policy repo rate unchanged at 6.5 per cent and retain the monetary policy stance of ‘withdrawal of accommodation.’ With the rise in crude oil prices and the USD-INR recently touching its all-time high, it is unlikely that the RBI will change its stance to neutral,” said Amit Goel, Co-Founder & Chief Global Strategist, Pace 360.
Goel added that he expects the RBI to take comfort from declining core inflation, and slightly soften its hawkish forward guidance, but remain cautious given the upside risks to food inflation and the repricing of the Fed funds rate easing path and RBI aims to keep inflation at 4 per cent with a comfort band of 2 per cent in both directions.
Jahnavi Prabhakar, Economist, Bank of Baroda opined, “US Fed has hinted at three rate cuts in calendar year 2024 (CY24) with the first one expected in June 24. Bank of England and ECB too are expected to follow suit with rate cuts this year. On the other hand, the Bank of Japan made a historic shift and hiked rates (0.1 per cent from 0 per cent) for the first time in over 17 years. RBI is unlikely to pivot at the current juncture, given the resilience of domestic economy."
Prabhakar felt that the likelihood of any rate cuts has been pushed forward to H2 FY25. She expects two rate cuts this year of 25 to 50 basis points with the first one likely in August 2024 which however is contingent on the evolving inflation scenario.
Sujan Hajra, Chief Economist & Executive Director, Anand Rathi Shares and Stock Brokers added to this and said, “The backdrop of presidential elections may make the US Fed hesitant to cut rates toward the year-end, with a 50/50 chance of June cuts. Besides, parts of Europe have already or are about to enter an easing cycle. This has pushed the US Dollar Index (DXY) higher, which would be a negative for the rupee.”
He noted that as per their initial expectations, while the overall liquidity deficit holds, year-end government spending has led to an easing of interbank liquidity. This has brought the weighted average lending rate (WALR) near the repo rate as against the marginal standing facility (MSF), where it was at the end or beginning of the last or current year.
“Another status-quo policy. With the latest data on inflation and growth affirming our previous view, we reckon the RBI is unlikely to cut rates in CY24. We see strong growth continuing in FY25 (the RBI’s latest bulletin estimates 7.4 per cent growth) and above-target inflation persisting,” Hajra added.
