NEW DELHI: The Reserve Bank of India might maintain steady repo rates in the monetary policy meeting on Wednesday. However, a few investors are speculating a shift to neutral, which might be a potential step to rate cuts amid slow economic growth and ease of global rates.
According to a Reuters Poll, 80 percent out of 76 economists predicted that the central bank will be maintaining the 6.5 per cent repo rate for the 10th consecutive meeting, since February 2023.
A reduction of 0.25 per cent was expected by 12 economists and while one anticipated a drop to 6.15 per cent. Nomura economists, amid expect a 55 per cent likelihood of rate cut in October, which however, could lead either way.
The US Federal Reserve’s 0.50 per cent rate cut last month may prompt the RBI to initiate rate reduction sooner rather than later, according to market participants.
ICRA, chief economist, Aditi Nayar informed, “Given the undershooting in the initial Q1 GDP growth relative to the MPC’s forecast, and the likely sizeable undershooting in the Q2 CPI inflation print as well, we believe a stance change to neutral may be appropriate in the October 2024 policy review.”
Even though India’s economic growth slowed down to 6.7 per cent in the April-June quarter, due to the decline in government spending during national elections, it still remained the world’s fastest-growing major economy.
According to data, high frequency indicators like manufacturing PMI slowed to an eight-month low in September, while services PMI eased to a 10-month trough.
Annual retail inflation stayed below the central bank’s 4 per cent target for the second month in a row, reaching 3.65 per cent in August. This was up from the revised 3.60 per cent in July and higher than economists’ prediction of 3.5 per cent.
Despite the recent decline, the poll projected that inflation will rise again, averaging 4.5 per cent this fiscal year and 4.3 per cent next year.
According to Bank of America, The RBI would have the opportunity to reduce rates in the coming months, driven by slowing growth and declining inflation. It forecasts a 0.1 per cent reduction in the repo rate by December 2025, beginning with the first cut in December 2024.
Yes Bank economists said, “This policy is likely to be interesting. Not only as the markets will hear from the new external members, but also as the debate in India has veered around a likely slowdown story and limited risks for inflation.”
The apex bank reorganises its panel every four years which could affect voting patterns. Two of six panel members who left the panel voted to cut rates in recent meetings.
Among India’s newly-appointed monetary policy committee members, at least one may disagree with a rate cut, according to several economists.