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Informist, Thursday, Nov. 7, 2024

NEW DELHI – HSBC has pushed back its expectation of the first interest rate cut by the Reserve Bank of India's rate-setting panel to February from December as the macroeconomic backdrop has changed. Economists at HSBC had previously expected a rate cut in December after the RBI's Monetary Policy Committee changed its stance to neutral from 'withdrawal of accommodation' and as some high-frequency data pointed to a slowdown in growth. 

"But the backdrop changed," HSBC's India Chief Economist Pranjul Bhandari and Economist Aayushi Chaudhary said in a report on Thursday. CPI inflation is likely to play spoilsport for a December rate cut, with the October print seen rising to 5.9% in October from 5.5% in September, the report said. Inflation likely rose in October because of higher food inflation led by a sharp spike in edible oil prices and still high vegetable inflation, the report said. The October CPI data will be released on Tuesday at 1600 IST.

"In the past, the RBI used to often look through vegetable price inflation, but that is not the case anymore," HSBC's economists noted. "Back-to-back shocks seem to have made officials distrustful of quick disinflation in vegetable prices. In fact, we believe they will not even take solace in the fact that the prices of pulses, eggs, meat and fish have softened recently."

The concerns of a slowdown in economic activity have also come down with some data points coming in stronger in October, the report said. GST revenue growth, manufacturing and services Purchasing Managers' Index, vehicle sales and registration, petrol and diesel consumption and international passenger arrivals all point to a growth comeback, the report said. 

"And even though, as the month progresses, several other growth indicators may come in weaker than before, these improved prints seem to have taken off some of the urgency around rate cuts, making the RBI more open to waiting a while longer before easing," HSBC said.

Another reason for pushing back its rate cut expectation to February is the "unwaveringly hawkish communication" by RBI officials, HSBC said. RBI Governor Shaktikanta Das on Wednesday said that it would be wrong to assume that a change in stance by the MPC would be followed by a reduction in the repo rate at the next meeting. On Oct. 18, Das had said that "you can't be cutting rates" when inflation is 5.5% and the next print is also expected to be high, especially when growth is also doing well.

The RBI may also prefer to wait right now with volatility in the global markets, HSBC said. Instead, the central bank may ease rates at a time when global markets are more stable, the report said.  End

Reported by Shubham Rana

Edited by Saji George Titus

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