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RBI likely to keep rates steady as economic growth slows, global rates ease
Source: Business Standard
Despite the recent dip, a Reuters poll has estimated that inflation will pick up again, to average 4.5 per cent this fiscal year and 4.3 per cent next year (Photo: Reuters)
India’s central bank is likely to keep rates steady on Wednesday, with a small number of investors betting on the probability of a change in stance to neutral, opening the door to rate cuts as economic growth slows and global rates ease.
The Reserve Bank of India (RBI) is seen maintaining the repo rate at 6.5 per cent for a 10th straight meeting with more than 80 per cent of the 76 economists in a Reuters poll forecasting no change in rates. It has held the repo rate steady since February 2023.
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A dozen economists predicted a 25 basis-point cut, while one anticipated a drop to 6.15 per cent. Nomura economists said they see a 55 per cent probability of a rate cut in October while acknowledging it would be a close call.
Market participants believe the U.S. Federal Reserve’s 50-bp rate cut last month may prompt the RBI to start cutting rates sooner rather than later, with most now pricing in a December rate cut versus early 2025 previously.
“Given the undershooting in the initial Q1 GDP growth relative to the MPC’s forecast, and the likely sizeable undershooting in the Q2 CPI inflation print as well, we believe a stance change to neutral may be appropriate in the October 2024 policy review,” said Chief Economist at ICRA Aditi Nayar.
India’s economic growth slowed to 6.7 per cent in the April-June quarter from a year earlier as a decline in government spending during national elections weighed, but it remained the world’s fastest-growing major economy.
High frequency indicators such as the manufacturing PMI slowed to an eight-month low in September, while services PMI eased to a 10-month trough, latest data showed.
Annual retail inflation remained below the central bank’s target of 4 per cent for a second consecutive month, clocking in at 3.65 per cent in August, higher than the revised 3.60 per cent in July and economists’ forecast of 3.5 per cent.
Despite the recent dip, a Reuters poll has estimated that inflation will pick up again, to average 4.5 per cent this fiscal year and 4.3 per cent next year.
Bank of America expects RBI will have room to cut rates in the coming months due to slowing growth and falling inflation and project a 100-basis-point cut in the repo rate by December 2025, with the first cut starting in December 2024.
RATE PANEL REJIG
“This policy is likely to be interesting. Not only as the markets will hear from the new external members, but also as the debate in India has veered around a likely slowdown story and limited risks for inflation,” economists at Yes Bank said in a note.
The RBI reshuffles its panel every four years which could affect voting patterns. Two of six panel members who left the panel voted to cut rates in recent meetings.
India’s newly-appointed monetary policy committee members may see at least one dissenter calling for a rate cut, several economists said in separate research notes last week.
(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)
First Published: Oct 07 2024 | 1:49 PM IST
