(Reuters) – India’s key rate was left unchanged for a seventh straight meeting on Friday, in line with expectations, as the central bank awaited a sustained fall in inflation towards its 4% target amid robust economic growth.
The six-member monetary policy committee (MPC), consisting of three Reserve Bank of India (RBI) and three external members, left the key repo rate unchanged at 6.50%.
Five members voted in favour of the rate decision while the monetary policy stance was retained at ‘withdrawal of accommodation’, suggesting the panel intends to keep policy restrictive.
The Indian economy should expand by 7% in the fiscal year 2025, while retail inflation is seen at 4.5%, RBI Governor Das said, with volatile food prices seen as a continuing risk.
“It is essential, in the best interest of the economy, that CPI (consumer price index) inflation continues to moderate and aligns to the target on a durable basis. Till this is achieved, our task remains unfinished,” Das said.
COMMENTARY:
KUNAL KUNDU, INDIA ECONOMIST, SOCIETE GENERALE, BENGALURU
“With this decision, the June rate cut is definitely off the table and there is a possibility of rate cut being pushed eventually to the third quarter and possibly fourth quarter.”
“Although inflation is clearly easing, RBI does not see its trajectory suggesting a move toward its median target of 4.0% on a durable basis. With food inflation being the prime driver of headline inflation while core inflation is at its pandemic low and well below RBI’s median inflation target, we feel that the hawkish monetary policy stance will potentially cost growth.”
SHILAN SHAH, DEPUTY CHIEF EMERGING MARKETS ECONOMIST, CAPITAL ECONOMICS, LONDON
“The RBI kept the repo rate on hold at 6.5% today as expected but the more interesting aspect was the slight dialling down of its hawkish rhetoric. With inflation grinding down towards the central bank’s 4% target, we remain comfortable with our view that the RBI will start cutting rates in the third quarter.”
“We think inflation will continue to gradually drop back over the coming months, reaching the 4% target by the middle of the year. As inflation falls, a change in policy stance looks on the cards for the June meeting, which would lay the groundwork for a 25 basis points rate cut in August.”
UPASNA BHARDWAJ, CHIEF ECONOMIST, KOTAK MAHINDRA BANK, MUMBAI
“The Monetary Policy Committee on expected lines maintained status quo on rates and stance. While low core inflation provides comfort, the uncertainty on food inflation remains a worry.”
“Further, the higher U.S. yields, higher oil prices and other commodities along with possible delay in Fed’s rate easing cycle will keep the MPC wary. Accordingly, we do not see much scope for any rate easing until the second quarter of FY25.”
DEVENDRA KUMAR PANT, CHIEF ECONOMIST, INDIA RATINGS AND RESEARCH, GURUGRAM
“We expect monetary easing either through rate cut or change in stance to begin from October 2024.”
“The strong growth momentum may limit rate cuts in easing cycle to 50 to 75 basis points.”
SAKSHI GUPTA, PRINCIPAL ECONOMIST, HDFC BANK, GURUGRAM
“The policy broadly mirrored the last policy in both its tone and action with no let up in its hawkish tone or any indication of a policy pivot in the coming months.”
“The likelihood of rate cuts or change in stance are increasingly being pushed forward to the third quarter of FY25. We see cumulative 50 basis points rate cuts in FY25.”
RADHIKA RAO, SENIOR ECONOMIST, DBS BANK, SINGAPORE
“The commentary belied expectations of any potential dilution in the stance despite softer CPI prints and plans for significant fiscal consolidation this year.”
“In addition to risks from domestic weather and spillover risks on food segments, the recent up-move in global oil prices could also complicate the forward-looking inflation outlook.”
GARIMA KAPOOR, ECONOMIST AND SENIOR VICE PRESIDENT, INSTITUTIONAL EQUITIES, ELARA CAPITAL, MUMBAI
“We do not expect the Monetary Policy Committee to begin policy rate cuts before the third quarter of FY25 but see tailwinds for debt market persisting amid inclusion in global bond indices, moderating core inflation and steady global commodity prices, excluding energy.”
MADHAVI ARORA, LEAD ECONOMIST, EMKAY GLOBAL, MUMBAI
“The RBI policy has been somewhat pegged to the Fed, specifically over the last two years, even as it formally targeted inflation.”
“This seems fair, as external dynamics have been fluid, implying that the policy prerogative needs to be flexible for ensuring financial stability.”
ANITHA RANGAN, ECONOMIST, EQUIRUS, MUMBAI
“The RBI has a view that domestic growth momentum led by rural recovery, private capex and government investment will remain strong into the year, and inflation is also expected to remain moderated.”
“However, the key headline risk is coming from rising geopolitics which is also getting evidenced in rising crude prices. The impact on inflation from the above two factors warrant a watch and staying cautious on the policy.”
SACHCHIDANAND SHUKLA, GROUP CHIEF ECONOMIST, LARSEN & TOUBRO, MUMBAI
“The Governor and RBI have done well to reiterate their conditional commitment to getting inflation within the comfort zone.”
“The down move on rates will happen once there is further clarity on three things: monsoon forecasts by way of spatial and temporal distribution, presentation of the final budget and a definitive move from the Fed.”
ANUJ PURI, CHAIRMAN, ANAROCK GROUP, MUMBAI
“The decision to maintain status quo will keep the ongoing residential real estate sales momentum on course and unimpeded.”
“Aspiring homebuyers eyeing a purchase will proceed with confidence.”
SUVODEEP RAKSHIT, SENIOR ECONOMIST, KOTAK INSTITUTIONAL EQUITIES, MUMBAI
“We continue to expect a shallow rate cut cycle from the third quarter of FY25 onwards with the stance changing to neutral at the end of the second quarter or along with the rate action.”
(Reporting by Rama Venkat, Yagnoseni Das, Navamya Ganesh Acharya, Dhanya Skariachan, Ashish Chandra, Meenakshi Maidas, Nishit Navin, Anuran Sadhu in Bengaluru and Siddhi Nayak in Mumbai; Editing by Mrigank Dhaniwala)
