India’s central bank seen to hold rates at 6.5% through Q1 2024, cut in Q2
BENGALURU – The Reserve Bank of India (RBI) will hold its key interest rate at 6.5 percent through end-March 2024, according to a Reuters poll of economists, who pushed back their expectations for the first rate cut to the second quarter of 2024 from the first quarter in a June survey.
Inflation in Asia’s third-largest economy snapped a four-month downward trend, climbing to 4.81 percent last month on higher food prices. Few are forecasting a plunge in coming months, offering little reason for the RBI to change policy now.
Indeed, inflation is expected to average above 5 percent this fiscal year, which ends on March 31, 2024, above the RBI’s 4 percent medium-term target.
READ: India’s retail inflation rose more than expected in June on higher food prices
The July 13-31 Reuters poll of 75 economists showed the central bank was expected to keep its repo rate at 6.5 percent at its Aug. 10 policy meeting.
A majority said rates will stay there through the first quarter of 2024, followed by 50 basis points worth of cuts by the end of June, around the same time when markets expect the U.S. Federal Reserve to start cutting its rates.
READ: India rate cut bets pushed to mid-2024 amid inflation jump – traders
In a June survey, economists predicted the RBI to cut the repo rate by 25 basis points by end-March 2024 and another 25 basis points in the April-June quarter.
“They are not going to be very decisive in cutting rates and that is why we believe this pause … may remain for a longer period unless there are clear signs of a slight weakness in growth or core inflation coming down,” said Suman Chowdhuri, chief economist at Acuite Ratings and Research.
Among those who offered forecasts until March 2024, a slim majority, 32 of 62, expected rates to hold at 6.5 percent, while 20 saw a cut to 6.25 percent, and 10 said 6 percent or lower.
While a smaller number of forecasters provided rate views well into next year, median forecasts showed no further cuts beyond 6 percent.
