As the Reserve Bank of India (RBI) prepares for its upcoming policy meeting on February 8, economists polled by Reuters are anticipating that the central bank will keep its key interest rate steady at 6.50%. This consensus reflects the expectation that the RBI will maintain a hold on rates until at least July, a longer duration compared to some developed market central banks.
Having increased its repo rate by a cumulative 250 basis points, a significantly lower adjustment than most of its major counterparts, the RBI has refrained from altering the rate since February 2023. This stability is attributed to inflation remaining predominantly within the RBI’s 2%-6% target range.
RBI Chief Shaktikanta Das recently expressed confidence in the current monetary policy’s ability to bring inflation back to its 4% medium-term target. However, with inflation hovering close to the upper band of the target range and India retaining its status as the fastest-growing major economy, analysts do not anticipate a rate cut in the immediate future.
Of the 60 economists surveyed between January 10 and February 1, only one expects the central bank to make a change in the repo rate at the conclusion of its February 6-8 meeting. A significant majority, 41 out of 60 economists, predicts that the RBI will maintain the rate until at least the third quarter, a perspective that contrasts with expectations for the U.S. Federal Reserve to lower its key interest rate in the next quarter.
“We expect the RBI to keep rates on hold next week. Rate cuts will likely only begin in the second half of 2024 as headline inflation stabilizes nearer to the 4% target midpoint,” remarked Aditi Raman, an associate economist at Moody’s Analytics. Raman also noted that while there is a risk of inflation breaching the 6% upper limit, the RBI is likely to closely monitor commodity and food prices.
Though there is no unanimous agreement on the exact timing of the first rate cut, a substantial minority of 25 out of 56 economists foresee easing beginning in the third quarter. Only 18 of those anticipate the first cut before July, despite predictions that inflation will likely remain above 4% throughout this year and the next.
Rahul Bajoria, Chief EM Asia economist at Barclays, pointed out, “The RBI finds itself in a reasonably comfortable position… the economy continues to be in a Goldilocks phase, with growth broadly steady, seemingly without resulting in demand-side inflationary pressures, yet.”
According to a separate Reuters poll, the Indian economy is expected to grow by 6.9% in the current fiscal year and 6.3% in FY 2024-25. In Finance Minister Nirmala Sitharaman’s latest annual budget speech, she outlined plans to sharply reduce the fiscal deficit to 5.1% of GDP in 2024-25 from the current 5.8%, emphasizing a focus on infrastructure and long-term reforms to drive growth. The government’s fiscal prudence aligns with the broader economic strategy as India navigates evolving global economic dynamics.