May 31, 2024
New Delhi, India
RBI Policy: Repo Rate Cut
The Reserve Bank of India (RBI) will announce its latest monetary policy after the Monetary Policy Committee (MPC) meeting, which runs from June 5-7. A Reuters poll of economists, conducted between May 17-30, indicates a strong expectation that the RBI will maintain the current benchmark repo rate at 6.50% during this session.
Economists’ Expectations
The survey of 72 economists revealed a consensus, with all but one predicting the RBI will keep the repo rate unchanged. However, there’s a widespread belief that a rate cut could occur in the final quarter of this year, instead of the upcoming quarter. The precise timing of the rate cut remains uncertain among experts.
Inflation and Economic Growth Outlook
The anticipated delay in the rate cut comes as inflation is expected to stay above the RBI’s target range of 2%-6%. India’s inflation rate for April was 4.83% and is forecasted to drop to 4.00% next quarter before increasing again, averaging 4.5% for this fiscal year and the next.
In terms of economic growth, India’s GDP is projected to grow by 6.8% this fiscal year and 6.6% the following year. The RBI’s Annual Report for 2023-24 projects a GDP growth rate of 7% for the current fiscal year, driven by robust macroeconomic fundamentals.
Global Central Banks and RBI Strategy
The delay in interest rate cuts by major central banks, including the U.S. Federal Reserve, reduces the urgency for the RBI to act swiftly. India, with its nearly 8% growth rate and higher-than-average inflation, has less immediate need for rate cuts unless significant economic downturn risks become apparent.
Detailed Poll Results
Nearly half of the economists surveyed (33 of 71) expect the RBI to implement its first rate cut in the fourth quarter of 2024, predicting the repo rate will drop to 6.25%. This is a shift from earlier expectations in April, which forecasted a rate cut in the third quarter.
By the end of 2024, 33 of the economists predict the repo rate will be 25 basis points lower at 6.25%. Meanwhile, 15 expect it to be 6.00%, and five anticipate it will be 5.75% or lower. The remaining 18 economists forecast no change in the repo rate for the year.
Conclusion
The RBI is expected to maintain the repo rate at 6.50% in its upcoming policy announcement. The anticipated rate cut, likely to occur in the last quarter of 2024, reflects the RBI’s cautious approach in balancing inflation and economic growth.
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