MUMBAI: Mint Road observers are unanimous in forecasting a status quo on the policy rate front at the monetary policy review later this week, citing the growth-oriented budget, coupled with the trade deal with the EU as well as the long-delayed deal with the US.
The Reserve Bank-led monetary policy committee (MPC) began its three-day meeting on Wednesday and will announce its view on the repo rate and policy stance on Friday. The panel has since last February slashed the repo rate to the tune of 125 bps to 5.25 by cutting rates in four of the seven MPC meetings since governor Sanjay Malhotra took charge, which also included a 50 bps delivery—the highest ever single rate cut in June.
Sonal Varma, the chief economist at Nomura India, “expects the RBI to view the budget as prudent, given the continued commitment to fiscal consolidation and its focus on growth enhancing reforms. The budget is positive for growth and neutral for inflation, so we do not expect this to materially influence the RBI at its next MPC meeting, where we expect the repo rate to be left unchanged."
She said, “That said, the budget’s borrowing is higher than market expectations, which could revive concerns on the funding of the consolidated borrowing program and increase pressure on the RBI from a debt management perspective.”
She added, “Since the last policy, one of the major policy changes is the EU-India and US-India trade deal resulting in reduction in tariffs on India to 18% from 50% earlier. Clearly, India has now one of the lowest tariffs among Asian countries which will help in improving our export competitiveness."
“We observe that despite policy rate easing, government bond yields have exhibited persistent hardening in recent periods. Given all these, RBI is thus likely to maintain status quo in the upcoming policy,” Soumya Kanti Ghosh of SBI said, adding the central bank is also likely to keep its stance unchanged.
He also feels that the new CPI weights with unchanged index domestic inflation indicates increase in overall CPI marginally by 20-30 bps. In the months when food inflation is higher, the new CPI will be lower by 20-30 bps, which will both be inflation-containing as well as growth-inducing.
Sakshi Gupta and Deepthi Mathew, economists at HDFC Bank, also batted for the status quo.
“We continue to hold on to our view of no rate cut in the upcoming policy and for 5.25% to be the terminal repo in this cycle. With a trade deal, the conviction around our forecast has increased. Moreover, with the pressure on the rupee easing, we anticipate the drag on rupee liquidity to moderate. We do not anticipate further durable liquidity measures to be announced in the upcoming policy and see liquidity conditions improving by quarter-end (towards 1% of NDTL) given the measures already announced by the RBI since December,” they said.
“Although inflation projections suggest there is room for another 25-bps rate cut, we believe the MPC will pause and preserve its policy ammunition. Retaining this policy flexibility remains important even after recent trade agreements, as the global environment remains uncertain and susceptible to geopolitical flare-ups that could materially impact domestic growth and inflation dynamics,” they added.
They also see the RBI revising its growth forecasts given the boost from the India-US trade deal.
The MPC is expected to emphasise macroeconomic stability and transmission efficiency, signalling that policy effectiveness at this stage relies more on calibrated liquidity management and stable financial conditions rather than immediate adjustments to interest rates.
Similarly, Rajani Sinha of Care Ratings also sees no changes in the policy rates, saying “although there is room for another 25-bps rate cut based on inflation projections, we expect the MPC to pause and preserve policy space for future action. Retaining this policy firepower remains important even after the conclusion of recent trade deals, as the global environment remains uncertain amid persistent geopolitical tensions. Any flare-up could have material implications for the domestic growth–inflation dynamics.”
Kaushik Das, the chief economist at Deutsche Bank India, says the rate cutting cycle is over for now. “While there is space for the MPC to provide a growth supportive rate cut, it remained contingent on India achieving a trade deal with the US which has remained one of the key sources of uncertainty for the growth outlook," he said. “The deal now would boost the growth certainty and the current momentum seen in high frequency indicators can continue to sustain," he added.
Rahul Bajoria, Bofa India & Asean economist, also sees no rate cut now as the budget is neutral for monetary policy but maintains that there is a need to provide liquidity support to aid the transmission of rate cuts. "We also believe the RBI is now done cutting rates but will continue to manage its liquidity provisions carefully to ensure rate transmission remains active," he said.
Deepak Agrawal of Kotak Mahindra AMC also expects a status quo on Friday, saying, “The upcoming policy, coming soon after the budget, is set against a supportive domestic macro backdrop.With inflation well below the target, growth momentum intact, surplus system liquidity, and fiscal consolidation reaffirmed, conditions favour policy stability.”
Though he does not see a rate cut, he expects “the policy stance and the forward guidance is likely to remain mildly dovish, underscoring a data-dependent stance and preserving flexibility for recalibration should the growth–inflation trade‑off evolve.”
According to Sachin Sawrikar of Artha Bharat Investment Managers, the MPC is expected to emphasise macroeconomic stability and transmission efficiency, signalling that policy effectiveness at this stage relies more on calibrated liquidity management and stable financial conditions rather than immediate adjustments to interest rates.