Highlights

  • RBI is expected to maintain key rate until Q3 2024.
  • Economists anticipate India's first rate cut in Q3 2024.

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RBI may hold interest rates steady until Q3 2024: Reuters Poll

Since increasing its repo rate by a total of 250 basis points, a considerably smaller adjustment compared to many of its significant counterparts, the RBI has left it unchanged since February 2023.

RBI may hold interest rates steady until Q3 2024: Reuters Poll

The Reserve Bank of India is anticipated to maintain its key interest rate at 6.50% during the upcoming policy review on February 8, as per a Reuters poll conducted among economists. The consensus among 60 economists surveyed between January 10 and February 1 suggests that the central bank is likely to keep rates steady until at least the third quarter of 2024, defying expectations of an early rate cut.

Since the RBI's last rate hike in February 2023, where it raised the repo rate by a cumulative 250 basis points, the central bank has refrained from further adjustments, given that inflation has largely remained within the targeted range of 2%-6%. RBI Governor Shaktikanta Das recently expressed confidence in the current monetary policy's ability to bring inflation back to the 4% medium-term target.

Despite India holding its position as the fastest-growing major economy and inflation hovering near the upper limit of the target range, economists in the poll believe a rate cut is unlikely in the near term. A significant majority, 41 out of 60 economists, expect the RBI to maintain the status quo until at least the third quarter of 2024, setting a contrast to the anticipation of a key interest rate cut by the U.S. Federal Reserve in the next quarter.

Aditi Raman, associate economist at Moody's Analytics, commented, "Rate cuts will likely only begin in the second half of 2024 as headline inflation stabilises nearer to the 4% target midpoint." Despite concerns of inflation breaching the upper limit, the RBI is expected to closely monitor commodity and food prices.

While there is no unanimous agreement on the timing of the first rate cut, 25 out of 56 economists foresee the easing to commence in the third quarter, with only 18 expecting the first cut before July. The RBI seems to be in a comfortable position, with the economy poised for steady growth and limited inflationary pressures, according to Rahul Bajoria, Chief EM Asia Economist at Barclays, reported Reuters.

The Indian economy is forecasted to grow by 6.9% in the current fiscal year and 6.3% in FY 2024-25, according to a separate Reuters poll. Finance Minister Nirmala Sitharaman, in her latest annual budget speech, outlined plans to reduce the fiscal deficit sharply in 2024-25, focusing on infrastructure and long-term reforms to drive sustained growth. The government has revised its fiscal deficit target to 5.1% of GDP for 2024-25, down from 5.8% in the current fiscal year.

Also Watch: Moody's says not much improvement in debt affordability in India; here's FM's message to ratings agencies


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