Categories: Business Economy

RBI may not cut repo rate any soon or for six months: Economists

Chennai, Feb 8 (SocialNews.XYZ) With the Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) deciding to retain the repo rate at 6.5 per cent, economists are of the view that a rate cut may not happen any time soon or at least for next six months, said senior economists.

In a 5:1 decision, the MPC which met on February 6-8, decided to hold the repo rate -- the rate at which the RBI lends to banks -- at 6.5 per cent.

The RBI MPC also decided not to change its stance to 'neutral’ from 'withdrawal of accommodation’.

“It was no surprise that RBI MPC decided to keep the status quo on the interest rates for the sixth consecutive time. However, RBI continued to sound hawkish as against the market expectations and has not provided any indication of the timing of the change in monetary stance from withdrawal of accommodation,” said Suman Chowdhury, Chief Economist and Head – Research, Acuité Ratings & Research.

“Given the tone of the MPC statement and the expectation of growth buoyancy, we believe that the likelihood of any rate cut by RBI has significantly reduced over the next six months,” Chowdhury added.

The RBI MPC will not cut the repo rate ahead of the US Federal Reserve, said Madhavi Arora, Lead Economist, Emkay Global Financial Services.

“We understand that shifting debates on global narratives requires the RBI to be flexible as well. We have long maintained that the RBI's policy has been somewhat pegged to the Fed, specifically in the last two years, even as it formally targeted inflation. The swift turn of tone and action pivots of the RBI in the last two years have been influenced purely by global narrative. We do not see RBI preceding the Fed in rate cuts,” Arora said.

Predicting that RBI will remain cautious owing to high food inflation, CARE Ratings’s Chief Economist Rajani Sinha said: “Healthy economic growth gives room to the Central Bank to maintain status quo for some more time.”

“However, in the second half of the year, as domestic inflationary concerns recede and the US Fed starts cutting rates, we can expect a shallow rate cut by RBI. On the liquidity front, RBI will continue to intervene through appropriate tools as required,” Sinha said.

Sujan Hajra, Chief Economist & Executive Director, Anand Rathi Shares and Stock Brokers, was also of view that rate cut may not happen any soon and RBI will be on wait and watch mode.

“With RBI's inflation projection of 4.5% for FY25, any expectations of cuts coming in the current year become unlikely. We think the progress in food prices will be the key monitorable for RBI's tone in the upcoming policy. Like other central banks, higher growth for the current and next year gives RBI more headroom to be on a wait-and-watch mode,” Hajra said.

As to the 7% economic growth rate for FY25 stated by RBI Governor Shaktikanta Das, Chowdhury said: “They have significantly upgraded their growth prospects for the next fiscal to 7.0%, reflecting that there are minimal concerns on economic growth at this time.”

“RBI’s assessment on global growth also appears to be positive versus last year and it also believes that central banks are unlikely to resort to a pivot within a short period. Our outlook on the domestic growth prospects are moderate with a base forecast of 6.3% for FY25, given the visible weakness in the private consumption growth which is estimated at 4.4% in FY24 in the NSO estimates,” Chowdhury said.

“On the inflation front, the base forecast for headline CPI in FY25 is set at 4.5% which in our opinion has significant upside risks if the growth really maintains such a high level of momentum and if there are even moderate risks in the monsoon behavior,” Chowdhury added.

Source: IANS

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