RBI's interest rate cut expectations pushed back to late 2024
What's the story
A recent survey conducted by Bloomberg indicates that the Reserve Bank of India (RBI) may postpone its planned interest rate cut until the last quarter of 2024.
This prediction arises due to escalating inflation risks and the US Federal Reserve's decision to maintain its current rates.
The survey suggests that RBI might begin reducing its benchmark repo rate, presently at 6.5%, by a total of 50 basis points in the October-December period before pausing for several months.
Expert insight
Economists comment on RBI's anticipated move
RBL Bank Ltd.'s economist, Achala Jethmalani, has weighed in on the matter.
She noted that while India's growth-inflation dynamics are strong, "the global and geopolitical developments remain key to track."
Jethmalani further stated that the "monetary policy pivot in advanced economies, particularly the US Fed, could possibly alter the domestic rate scenarios too."
This perspective highlights the interconnectedness of global economic policies and their potential impact on India's interest rates.
Inflation impact
RBI's stance on interest rates amid inflation concerns
The RBI has maintained steady interest rates for seven consecutive meetings.
Governor Shaktikanta Das has expressed reluctance to lower rates unless inflation stabilizes around the central bank's target of 4%.
Despite inflation falling below 5% in March, potential increases in food costs due to an unusually hot summer could disrupt this trend.
This stance underscores the central bank's cautious approach toward managing inflation and interest rates.
Future projections
Economists' predictions on inflation and economic growth
The Bloomberg survey revealed that economists have slightly lowered their quarterly inflation predictions through to December, but the forecast for the entire fiscal year remains unchanged at 4.5%.
Economists participating in the survey also increased their projections for economic growth for the January-March quarter to 6.3% from 6.1%.
They predict that India's economy will expand by 6.7% in the full fiscal year ending in March, up from last month's estimate of 6.6%.