The Reserve Bank of India (RBI) may maintain the status quo at its next Monetary Policy Committee meeting next month, according to Murthy Nagarajan, Head - Fixed Income, Tata Asset Management. The next Monetary Policy Committee (MPC) meeting is set for April 3–5.
Since the April MPC meeting in 2023, the central bank has held the repo rate at 6.5 percent, after hiking it by 250 basis points (bps) in May 2022. Following the February MPC meeting, the central bank kept the repo rate at 6.5 percent for the sixth time in a row.
According to Nagarajan of Tata Asset Management, the central bank expects Consumer Price Index (CPI) inflation to be 4.5 percent next year, assuming a normal monsoon season. He stated that the RBI is expected to wait for the Indian Meteorological Department's forecast before making a decision on food inflation.
"CPI inflation for January and February continues to be above 5 percent levels, 1 percentage point higher than the RBI target of 4 percent. Higher inflation is due to food prices flaring up due to EL Nino conditions; core inflation, which excludes food and fuel items, is at 3.3 percent for February 2024. The RBI projection of CPI inflation for next year is 4.5 percent, assuming a normal monsoon. The RBI is expected to wait for the Indian Meteorological Department's forecast before forming a view on food inflation. The RBI Governor has stated that the last mile of bringing CPI inflation to the target of 4 percent is the toughest. We expect the RBI to maintain the status quo in the April policy due to strong growth," Nagarajan said. Earlier, the State Bank of India stated that the central bank may make its first decrease between June and August 2024.
"We anticipate the RBI to maintain its pause stance in upcoming policy..."The first rate cut is scheduled for June 24. "August 24 looks like the best bet right now," it said in a study.
Dharmakirti Joshi, CRISIL's Chief Economist, also stated that the RBI-led MPC may consider reducing interest rates at its June 2024 meeting. "The RBI will not be in a hurry to decrease interest rates, and no cuts are expected in the April MPC meeting. "The earliest would be in June," Joshi stated.
Joshi stated that the Resserve Bank of India will consider shifting its stance to neutral following the withdrawal of accommodation. "They'll shift their posture to neutral. Joshi predicted a change in stance initially, followed by a rate drop later.
Nomura also forecast 100 basis points of cumulative rate reduction beginning in August 2024. "We anticipate that the pause will last for the foreseeable future. The monetary policy pivot will follow the liquidity pivot, and one-year inflation projections indicate that the real policy rate will be around 1.8 percent," Nomura wrote in a review note.
Barclays and Morgan Stanley likewise forecast a rate decrease cycle beginning in June 2024. "We expect rates to remain on hold and to establish a shallow rate decrease cycle beginning in June. Morgan Stanley analysts expect inflation to decelerate to 5.1 percent in H1CY24 and 4.1 percent in H2CY24.
