Chennai, April 5 (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 not sure when the central bank would cut the rate.
Some expect a shallow rate cut may happen by the end of the calendar year while others are of the view that RBI will maintain a wait-and-watch attitude.
The MPC decided to leave unchanged the repo rate, the rate at which the RBI lends to banks, at its first meeting of FY25 held April 3-5. RBI Governor Shaktikanta Das said on Friday that the MPC decided to continue with the repo rate at 6.5 per cent and the stance of "withdrawal of accommodation".
CARE Ratings' Chief Economist Rajani Sinha said: "The RBI’s MPC decision to leave the policy rate unchanged was very much on expected lines. The RBI Governor highlighted that healthy economic growth gives room to the Central Bank to continue its focus on containing inflation to the 4 per cent target on a durable basis."
While the core inflation, including services inflation, has been moderating in the last few months, the main concern of the RBI is the persistent high food inflation and the adverse impact of that on household inflationary expectations, she added.
"Going forward, the central bank can look at a real rate of interest of around 1-1.5 per cent. Hence as inflation moderates to around 4.5% and as the US Federal Reserve starts cutting rates, one can expect RBI to go for a shallow rate cut of around 50 bps in two tranches starting Q3 FY25," Sinha added.
On his part, Anand Rathi Shares and Stock Brokers' Chief Economist & Executive Director Sujan Hajra said: "While there was some anticipation of rate cuts by the end of 2024, the RBI seems inclined to adopt a wait-and-see approach before initiating a rate cut cycle."
According to him, RBI’s current neutral policy stance appears designed to mitigate risks without unduly unsettling the debt and equity markets.
"This strategy highlights the RBI's priority to balance growth with inflation control, acknowledging the significant weight of volatile food components in India's retail inflation basket and the potential impact of global oil price fluctuations," Hajra said.
Indian Banks’ Association (IBA) Chairman & Central Bank of India's Managing Director & CEO, M.V. Rao said the RBI, while maintaining the retail inflation projection at 4.5 per cent for FY25, has revised downwards its projection for Q1 of FY 25 to 4.9 per cent from 5 per cent, for Q2 to 3.8 per cent from 4 per cent as projected in the February policy.
In Q3 of FY 25, CPI inflation is projected at 4.6 per cent, the same as that of the previous policy estimates, and for Q4, it is projected at 4.5 per cent, which is lower than the 4.7 per cent of the previous policy. These estimates indicate a softening of the prices. However, in most cases, it is still above the lower end of the band of 4 per cent.
Evidently, the focus still continues to be on inflation, Rao said.
Source: IANS
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