RBI Monetary Policy Updates
According to a significant majority of economists surveyed by Reuters, the Reserve Bank of India (RBI) is projected to maintain its current interest rates until at least July, a duration longer than anticipated for the U.S. central bank. This decision is attributed to robust economic growth and persistently high inflation levels. India’s economy exhibited an impressive 8.4 percent expansion in the final quarter of 2023, surpassing other major economies. Despite inflation hovering near the upper threshold of the central bank’s target range of 2 percent to 6 percent, there are no indications suggesting an imminent rate reduction.
A majority of the economists surveyed attributed this to the easing of Consumer Price Index (CPI) inflation in February and the steady pace of economic activity. Additionally, experts highlighted that the accelerated growth in Gross Domestic Product (GDP) affords the central bank greater flexibility to prioritize inflation reduction.
They were, however, divided on when the first cut would come, with nine of 52 saying next quarter, 24 picking the third quarter, 17 saying the fourth quarter and the rest expecting it at a later time. Median forecasts put the rate at 6.25% by the end of September and 6.00% at the end of this year.
Sakshi Gupta, Principal Economist at HDFC Bank, noted that although the central bank is expected to maintain both the repo rate and policy stance, the key focus should be on the Monetary Policy Committee’s communication, which is anticipated to lean slightly towards a more hawkish tone.
“They (MPC) will want to take comfort from the fact that growth continues to hold up even in the face of monetary tightening, which gives them room to continue with their hawkish stance to address inflationary risk,” Gupta said.
