Switzerland has become the first major economy to cut interest rates, while Japan, the world’s third-largest economy, ended its eight-year period of negative interest rates regime.
The meeting of the Reserve Bank Governor Shaktikanta Das headed MPC is scheduled for April 3-5. The decision will be announced on April 5 (Friday). It will be the first bi-monthly monetary policy of fiscal 2024-25. A total of six MPC meetings are scheduled for the fiscal beginning April 1, 2024.
The Reserve Bank last hiked the repo rate to 6.5 per cent in February 2023 and since then it has held the rate at the same level in its last six bi-monthly policies.
“Given that inflation is still in the 5 per cent range and there is a possibility of future shocks on the food inflation front, the MPC is expected to maintain the status quo on rate and stance this time,” said Madan Sabnavis, Chief Economist, Bank of Baroda.
He further said there can be a revision in the GDP forecast, which will be eagerly awaited. “The growth in FY24 has been much better than expected, and hence, the central bank will have less concerns here and will continue focusing on targeting inflation,” Sabnavis added. India posted 8.4 per cent economic growth in the December quarter of the fiscal 2023-24. The National Statistical Office (NSO) has revised GDP estimates for the first and second quarters of this fiscal to 8.2 and 8.1 per cent from 7.8 per cent and 7.6 per cent, respectively.
Aditi Nayar, Chief Economist, Icra, said the upward revision in the NSO’s GDP growth estimates for the first and second quarters of fiscal 2023-24, three successive quarters of 8 per cent plus GDP expansion and the CPI print of 5.1 per cent for February 2024, suggest status quo on rates and stance in the upcoming April meeting.
“Icra believes that the policy stance is unlikely to be changed before the August 2024 MPC review until there is visibility on the monsoon turnout as well as on the sustenance of the growth momentum and the US Fed’s rate decisions,” she said.
Consequently, the earliest rate cut is only likely in the October 2024 meeting unless growth posits a negative surprise in the intervening quarters, amid a shallow rate cut cycle limited to 50 bps at best, Nayar added.
On expectations from the MPC, Ranen Banerjee, Partner and Leader Economic Advisory, PwC India, opined that the overall strong GDP growth in the third quarter, moderating core inflation going below 3.5 per cent, global increase in crude prices, increased logistics costs and the escalating situation in geopolitical conflicts would be the key issues for deliberation.
“While some of the central banks in emerging economies have started to cut policy rates, the central banks of major economies are still unsure. The yield differential between India and the US has narrowed putting pressure on fund flows,” he said.
Banerjee added that the rupee is cushioned owing to the bond index-related flows anticipated from the second quarter and is providing comfort despite the narrowing of the yields.
“…while the MPC is most likely going to be in the pause mode again, there is a small window opening up on the policy rate front owing to which we are likely to have a few members of the MPC voting for a rate cut, but they will not be in majority,” he noted.
Nitin Gupta, Secretary, CREDAI NCR, Bhiwadi Neemrana, said he is hopeful for a reduction in the repo rate, even if marginal, as it would lead to a decrease in interest rates for home loans, consequently stimulating growth in the affordable housing segment.
“With proactive measures, we trust the RBI to chart a course that empowers both builders and buyers, fostering a resilient real estate ecosystem that contributes significantly to the nation’s economic prosperity aligned with the government’s vision of Housing for All,” he said.
In a recent report, global rating agency Moody’s also said the Reserve Bank will likely keep rates on hold in the coming months given strong growth and firm inflation.
The government has mandated the RBI to ensure the consumer price index (CPI) based inflation remains at 4 per cent with a margin of 2 per cent on either side.
On March 25, RBI deputy governor Michael Debabrata Patra, in a keynote address at Nomura’s 40th Central Bankers Seminar in Kyoto (Japan), said inflation in India is moderating after surging on multiple and overlapping supply shocks from the pandemic, weather-induced food price spikes, supply chain disruptions and global commodity price pressures following the Russia-Ukraine conflict.
He also noted that inflation peaked early in response to coordinated monetary-fiscal policies to anchor inflation expectations and dissipate idiosyncratic food price pressures.
As a result, inflation has fallen back into the tolerance band since September 2023, with core inflation steadily ebbing to even below the target, Patra said.
Other members of Governor Shaktikanta Das headed MPC are Shashanka Bhide, Ashima Goyal, Jayanth R Varma, Rajiv Ranjan, and Michael Debabrata Patra.
