GoodReturns Poll: RBI To Hold Rates At 6.5% Till Apr-June Of 2024; Cut Rates By FY25-End

The Reserve Bank of India (RBI) is expected to hold rates at more than a 5-year high of 6.5% for the fifth time in a row on December 8th, according to a GoodReturns poll. That is despite a significant cooling in inflation in the recent months. Prices are expected to stay above RBI's 4% medium-term target for the current fiscal and hence the central bank is likely to retain its outlook here. However, few economists expect an increase in GDP growth estimates for FY24 by the central bank.

All 40 economists conducted in a poll by GoodReturns between November 15 to December 1st, expect RBI to maintain the status quo in the repo rate at 6.5% on Friday.

Aditi Nayar, Chief Economist, HeadResearch and Outreach along with other economists at ICRA said, it "expects the MPC to maintaina hawkish tone amidst a status quo on the rates and stance in its upcoming December2023 policy meeting. We see the earliest likelihoodof a rate cut in August 2024, when a shallow rate cut cycle of 50-75 bps could commence."

"We expect the RBI to hold the repo rate at 6.5% in its next monetary policy meeting whose outcome is scheduled on Friday. We expect rate cuts by the RBI to begin around June 2024 and will not be surprised to see cuts to the tune of 75-100 bps by the end of FY25," Shreyansh Shah, Research Analyst, StoxBox also said.

Six-member Monetary Policy Committee's (MPC) three-day policy meeting commenced on Wednesday, and its outcome will be announced early of Friday. The meeting is chaired by RBI governor Shaktikanta Das.

While all economists agreed on the status quo in the December 2023 policy, they also unanimously voted for a 6.5% policy rate by the end of FY24.

However, when asked about the rate cut scenario, four-out-of-40 economists expect a rate cut in the second quarter of 2024, while two of them expect a rate cut to happen after Q2 of the next year. But the majority believe RBI to continue to hold rates at 6.5% till June 2024.

The majority of these economists expect rates cut in the range of 25 bps to 100 bps after June 2024 and by the end of the financial year 2024-25, on expectations of inflation to stay well within RBI's tolerance limits of 4-6%.

"RBI likely to maintain status quo till H1FY25. The tone is likely to be cautionary as India's growth fundamentals have remained resilient. On the inflation front, the core is comforting however, unanticipated supply shock on account of spike in vegetable prices remains key risks to our overall outlook. RBI is likely to be in a wait-and-watch mode till it is confident that inflation will crawl back towards the 4% target level," Bank of Baroda Economist team further said.

Overall, these economists expect RBI to retain its 5.4% inflation target by FY24.

Meanwhile, four economists of the total expect RBI to increase the GDP growth projection from 6.5% for FY24. Majority of them expect GDP growth to slow down after Q2 of FY24, and come around 6.5% by end of the fiscal.

"The decision to keep interest rates unchanged is in line with expectations as inflation management has been on the right track with core inflation having come down by 140 basis points from its recent peak in January 2023. With GDP growth estimates remaining the same at 6.5% for FY 23-24 a linear growth across industries looks like a good possibility," Suresh Khatanhar, Deputy Managing Director, IDBI Bank said.

Khatanhar also added, "On the liquidity front the withdrawal of the ICRR of 10% which impounded about Rs 1 lakh crore from the system will help boost consumer spending, especially in the festive season. However, there is a need for cautious optimism around the maintenance of the status quo by the RBI, due to the looming global economic pressures."

Moreover, Sujan Hajra, Chief Economist & Executive Director, Anand Rathi Shares and Stock Brokers who think RBI is unlikely to hike rates in December policy, said, "It will give a very hawkish commentary as strong growth observed from Q2 GDP figures and other high-frequency indicators for October and November speak to India's growth resilience."

"This combined with frequent food price shocks, as is the case with onion and tomatoes now, means taming inflation will continue to be the top priority. With RBI inflation forecasts being above 5% over the coming quarters, it is unlikely they will ease rates until Q3FY25 and we thereon expect a 50Bps easing in the final quarter of FY25," Hajra added.

On the economic growth front, Hajra said, "Our forecasts for GDP growth are 5% in Q4FY24 and 6.4% for the whole year. For FY25 we think growth will be around 6.5%."

In the October policy, RBI kept the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 6.50% for the fourth time in a row. Subsequently, the standing deposit facility (SDF) rate remains unchanged at 6.25% and the marginal standing facility (MSF) rate and the Bank Rate at 6.75%.

RBI has kept rates unchanged since the start of FY24 to observe the rate hike impacts on the economy and businesses. After Russia invaded Ukraine in early 2022, RBI including other central banks went for aggressive hiking in interest rates to tame extreme inflation pressure. From May 2022 to February 2023, RBI has hiked the repo rate by 250 bps.

MPC has also decided to remain focused on the withdrawal of accommodation to ensure that inflation progressively aligns with the target while supporting growth. These decisions align to achieve the medium-term target for consumer price index (CPI) inflation of 4% within a band of +/- 2 per cent while supporting growth.

In the previous policy, RBI projected CPI at 5.6% in Q3FY24 and 5.2% in Q4FY24, while for the entire fiscal, it estimated a 5.4% CPI rate. In the case of GDP, RBI has projected a growth rate of 6% by Q3 and 5.7% by Q4, while the overall financial year projection is set at 6.5%.

As per the latest data, India's consumer price index (CPI) inflation dropped to its lowest in four months 4.87% in October 2023 owing to a decline in various product categories. The country's real GDP growth comes to around 7.6% in the second quarter of FY24, stronger than the street's estimates of 6.8%. The latest economic print also surpassed RBI's Q2 target of 6.5% for the second consecutive quarter.

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