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Informist, Monday, Aug 12, 2024

 

By Shubham Rana

 

NEW DELHI – Though economists are split on when the Reserve Bank of India’s Monetary Policy Committee will begin lowering interest rates, most agree that the panel is unlikely to cut rates before December, according to a post-monetary policy poll by Informist.

 

Only three of the 22 economists polled expect rate cuts to start in October. Four see the cuts starting in October or December. A majority — 15 out of 22 respondents — expect rate cuts to start in December or later.

 

While seven respondents expect the cuts to start in December, four see the first cut coming in February, and one each in December or February and December or beyond. Two of the respondents — Equirus Securities and YES Bank — do not see any rate cut in the current financial year ending March.

 

The six-member rate-setting panel on Thursday left the repo rate unchanged at 6.50% for the ninth consecutive meeting. The committee also decided to maintain its "withdrawal of accommodation" stance, which it last changed in June 2022.

 

"The progress towards our goal of price stability has been uneven due to large and persistent supply side shocks, especially in food items," RBI Governor Shaktikanta Das said in his statement after the meeting. "We, therefore, need to remain vigilant to ensure that inflation moves sustainably towards the target, while supporting growth."

 

India’s headline inflation rate fell to a 59-month low of 3.54% in July. The central bank left its inflation and growth forecasts for 2024-25 unchanged at 4.5% and 7.2%, respectively.

 

"The governor's statement and the trajectory of inflation suggest that the urgency to cut rates remains low," Barclays said in a note.

 

Robust growth is also giving the RBI space to delay rate cuts and focus on aligning inflation to the medium-term target of 4% on a durable basis. Inflation has stayed above 4% for close to 5 years now, and the RBI’s quarterly projections show no sign that the 4% target will be met anytime soon.

 

The economists who see a rate cut in Oct-Dec are of the view that food prices, which have been driving headline inflation, are likely to come down with the progression of the southwest monsoon. So far, rainfall has been 7?ove the long period average.

 

As agricultural prospects become clearer by September, we expect it to pave the way for a rate cut, CRISIL Market Intelligence & Analytics said in a note. "Governor Das has also been reticent in the past about offering forward guidance, believing that it complicates monetary policymaking," Nomura said in a report. "So, we do not see the current hawkish communication and the ‘withdrawal of accommodation’ stance as impediments to the RBI changing course when the need arises."

 

Whenever the rate-cut cycle begins in India, it is likely to be a shallow one of 50-75 basis points. Most expect the panel to change the policy stance to "neutral" from "withdrawal of accommodation" before cutting the policy rate.

 

Two other developments that could influence the RBI’s actions are the trajectory of interest rates in the US, and the composition of the Monetary Policy Committee, economists said.

 

The US Federal Reserve is expected to begin lowering interest rates from September with expectations varying between a cut of 25 bps and 50 bps. If the rate cuts by the Fed are deeper and quicker than currently expected, the RBI may be forced to follow suit, economists said.

 

At its next meeting, the RBI's rate-setting panel will see three new external members. The tenures of current members Jayanth Varma, Ashima Goyal, and Shashanka Bhide end before the meeting scheduled for Oct 7-9.

 

Notably, the RBI governor’s tenure is also scheduled to end in December, and who holds the top position at the central bank will also have an impact on the trajectory of monetary policy in India.

 

Following are the expectations of respondents on the rate action:

 

Organisation	When rate-cut cycle is expected to begin
Bank of Baroda	December
Barclays	December
Capital Economics	December
CareEdge Ratings	December-February
CRISIL	October
DBS Bank	February
Emkay Global Financial Services	December
Equirus Securities	No cut in 2024-25
HDFC Bank	December
HSBC	Oct-Dec
ICICI Securities Primary Dealership	February
IDBI Bank	December
IDFC FIRST Bank	Oct-Dec
Kotak Mahindra Bank	December
Nirmal Bang Institutional Equities	February
Nomura	October
QuantEco Research	Oct-Dec
RBL Bank	February
Societe Generale	Oct-Dec
Standard Chartered	October
State Bank of India	Dec or after
YES Bank	No cut in 2024-25

 

End

 

With inputs from Sourabh Kumar

Edited by Rajeev Pai

 

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