More Stories

Informist, Friday, Oct. 11, 2024

 

By Shubham Rana

 

NEW DELHI - A change in the stance of monetary policy on Wednesday to neutral has firmed up expectations that the Reserve Bank of India's Monetary Policy Committee will announce its first interest rate cut in four-and-a-half years in December, according to a post-monetary policy poll by Informist.

 

As many as 20 of the 25 economists polled said they expect the MPC to lower the repo rate at the Dec. 4-6 meeting from 6.50% at present. The other five see the first rate cut being effected in February.

 

The reconstituted MPC Wednesday left the repo rate unchanged at 6.50% for the 10th consecutive meeting, although new external member Nagesh Kumar surprised by voting in favour of a 25-basis-point reduction in interest rates. The committee, however, unanimously chose to change the policy stance to neutral from 'withdrawal of accommodation', which was in place since June 2022. The MPC's resolution also said that it remains "unambiguously focused on a durable alignment of inflation with the target, while supporting growth".

 

"The latest guidance in our view sets up the next meeting in December as the one where RBI can potentially cut rates, amid slowing growth and manageable inflation," Rahul Bajoria, head of India economic research at BofA Securities, said in a report.

 

The RBI Wednesday retained its key macroeconomic forecasts for 2024-25 (Apr-Mar), although it lowered the GDP growth projection for Jul-Sept by 20 bps to 7.0%. However, Governor Shaktikanta Das rejected concerns on the growth front, especially the recent high-frequency data which economists say are indicative of a slowdown in activity levels.

 

"We think growth is gradually, but surely, moderating, as shown by recent high-frequency indicators, such as GST tax collections, auto sales, and still not recovering government capital expenditure among others," Barclays economist Shreya Sodhani said in a note. "This, in conjunction with continued disinflation, suggests that the 'supporting growth' part of the MPC's mandate will receive greater focus as inflation comes close to target," Sodhani added.

 

LOOMING UNCERTAINTIES  

Economists who think the MPC may lower the repo rate only in February point to the expected rise in inflation in September and October that was also cited by Das and his deputy Michael Patra at Wednesday's post-policy press conference. When asked if the change in stance to neutral should be taken as a sign that interest rates could be cut in December, Patra Wednesday said the RBI only wants to "see off the near-term hump in inflation before even considering the next move".

 

Headline CPI inflation is seen rising to 5.1% in September, as per an Informist poll. Inflation is expected to stay around 5% in October as well, Das said this week. The central bank also raised its forecast for inflation in Oct-Dec to 4.8% from 4.7%, although it is seen averaging just 4.1% in FY26. This would be the lowest since FY19.

 

"If RBI members prefer to wait for full clarity on the inflation hump, they should ideally wait for next three months of inflation data to gain sufficient conviction, assuming there are no big surprises on either side," economists at ICICI Securities Primary Dealership said in a note.

 

"Delaying the rate cut decision to February meeting will also provide access to more data, including first advance estimate for growth for the full fiscal year, and details of the Centre Budget FY26 that will be presented in February," they added.

 

The Union Budget for FY26 will likely be presented on Feb. 1, with the MPC scheduled to meet Feb. 5-7. Matters could be drastically different by then, especially if Das' term as governor--which ends a couple of days after the December meeting of the MPC--is not extended. Patra's term, too, is set to end in mid-January.

 

The following are the expectations of economists on when they see the RBI cutting the repo rate:

 

ORGANISATION	FIRST RATE-CUT
Bank of Baroda	February
Barclays	December
BofA Securities	December
Capital Economics	December
CareEdge Ratings	December
CRISIL	December
Deutsche Bank	December
Goldman Sachs	December
HDFC Bank	February
HSBC	December
ICRA	December
ICICI Bank	December
ICICI Securities Primary Dealership	February
IDFC FIRST Bank	December
Kotak Mahindra Bank	December
Morgan Stanley	February
Motilal Oswal Financial Services	December
MUFG Bank	December
Nirmal Bang Institutional Equities	December
Nomura	December
Prabhudas Lilladher	December
QuantEco Research	December
RBL Bank	February
Societe Generale	December
Standard Chartered	December

 

End

 

Edited by Vandana Hingorani

 

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

 

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd by NSE Data & Analytics Ltd, a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt Ltd.

 

Informist Media Tel +91 (11) 4220-1000

Send comments to feedback@informistmedia.com

 

© Informist Media Pvt. Ltd. 2024. All rights reserved.