Thirteen economists from the Bloomberg survey expect the monetary policy committee to retain “withdrawal of accommodation” language in the statement, while three saw a dilution in the phrasing and the remaining two estimate a shift to neutral. The rest of the economists didn’t share their forecasts.
“The Reserve Bank of India in its upcoming policy meeting on June 8th is expected to continue with its interest rate pause stance. In the previous policy, the MPC clearly stated that its next move would depend on data, and the latest inflation numbers were within the RBI target inflation range. MPC may though continue with withdrawal of accommodation stance. Important to see if there be any changes announced in the inflation and GDP projections for FY24,” said Srikanth Subramanian, CEO at Kotak Cherry.
Shishir Baijal- Chairman and Managing Director, Knight Frank India, expects the RBI to continue with its cautious stance despite a moderation in inflation.
“Inflation in other components, such as core inflation, which accounts for price pressures in households’ products, has remained elevated albeit with a slight moderation in April 2023. High core inflation affects the discretionary spending of the households, which in turn leads to moderation in the overall consumption demand. This has already been witnessed in FY 2023 GDP growth. Although, the overall economy grew by 7.2%, the share of private consumption to GDP moderated to 60.6% in FY 2023 from 61.1% in FY 2022 Thus, potential impact of the persistent price pressures on the domestic consumption growth will likely keep the RBI cautious,” said Baijal.
Data released last week showed India’s latest quarterly growth figures exceeded estimates, bringing about an expansion of 7.2% for the last fiscal year, higher than estimates of 7%. In April, when the RBI announced a pause in its rate hike, RBI governor Shaktikanta Das said that “if I have to characterise today’s monetary policy in just one line…it’s a pause, not a pivot.” Analysts also say that RBI policymakers would also be cautious in the light of a likely occurence of El Nino this year, which dries up crops and raises food prices. India’s weather office has maintained its forecast for normal monsoons this year but the arrival of rains may get delayed by a few days.
“While the monetary policy committee might vote unanimously to keep rates unchanged, the decision to extend the stance could see a split as the doves would prefer to close the door on further tightening as inflation beats a retreat,” said Radhika Rao, economist at DBS Bank.
Bond traders will watch out for the central bank’s views on liquidity after overnight rates shot up beyond the RBI’s policy rates thought rates have eased in recent days. (With Agency Inputs)
