Economists polled by Reuters anticipate that the Reserve Bank of India (RBI) will maintain its key interest rate at 6.50% during its upcoming meeting on February 8. The poll reveals a consensus among experts that the central bank is likely to keep rates unchanged until at least July, setting a longer timeline than some of its developed market counterparts.
Having raised its repo rate by a cumulative 250 basis points, considerably less than many other major central banks, the RBI has maintained the rate since February 2023. This steady stance is attributed to inflation staying within the bank’s target range of 2%-6%.
RBI Chief Shaktikanta Das recently expressed confidence that the existing monetary policy could steer inflation back to its medium-term target of 4%. Despite this optimism, the proximity of inflation to the upper band of the target range and India retaining its status as the fastest-growing major economy suggest a rate cut is unlikely in the near term.
Out of the 60 economists polled between January 10 and February 1, all but one expect the RBI to hold the repo rate at 6.50% at the conclusion of its February 6-8 meeting. A significant majority, 41 out of 60, predicts that the central bank will maintain the rate until at least the third quarter, in contrast to expectations for the U.S. Federal Reserve to lower its key interest rate in the next quarter.
Aditi Raman, an associate economist at Moody’s Analytics, stated, “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. While there is a risk of inflation breaching the 6% upper limit, the RBI is likely to monitor commodity and food prices closely.”
Despite inflation projections above 4% for this year and the next, a notable minority of 25 out of 56 economists forecast the easing to commence in the third quarter. Only 18 of them anticipate the first rate cut before July.
Rahul Bajoria, Chief EM Asia economist at Barclays, commented, “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.”
The broader economic outlook indicates a forecasted growth of 6.9% in the fiscal year and 6.3% in FY 2024-25, according to a separate Reuters poll. In her recent annual budget speech, Finance Minister Nirmala Sitharaman outlined plans for India to sharply reduce its budget gap in fiscal year 2024-25, emphasizing a focus on infrastructure and long-term reforms to drive growth. The government has lowered its fiscal deficit target to 5.1% of GDP in 2024-25, down from 5.8% this year.