MUMBAI: Analysts and Mint Road observers expect the Reserve Bank-led rate setting panel (MPC), which began its first three-day meeting of the new fiscal here on Wednesday, to maintain status quo on policy rates given the still sticky inflation and the more-than-expected economic growth in the December quarter.
RBI will announce its policy move and stance Friday. The meeting comes against the backdrop of a stronger-than-expected growth numbers (8.4% in Q3FY24) despite pressures in some sectors. The latest PMI reading shows manufacturing sector is red hot and is at a 16-year high of 59.1% in March.
The MPC, which has increased the policy rates by 250 bps to 6.5% from the pandemic driven easing to 4%, since May 2022, has been maintaining status quo since February 2023 when it had last hiked rates. Headline inflation though has been trending down since the past few months and got printed in at 5.1% in February and March.
“I don’t see the earliest rate cut before the October meeting, unless growth posits a negative surprise in the intervening quarters, amid a shallow rate cut cycle limited to 50 bps at best,” Icra Ratings chief economist Aditi Nayar told this newspaper. She also does not see the policy stance changing before the August review or until there is visibility on the monsoons turnout as well as on the sustenance of the growth momentum coupled with the US Fed’s rate decisions.
Rating agency Care Edge expects the policy rates to be kept on hold on Friday and so is the stance as it sees economic momentum to persist in the next fiscal given the public capex push and improving external situations. Given all these, the agency sees a balanced policy with focus on liquidity as the economy gets into the busy credit season, which is only accentuated by the cash-guzzling general elections. Care chief economist Rajani Sinha sees a rate cut in the second half of the fiscal as headline inflation approaches the 4% threshold.
Echoing similar views, Wall Street brokerage Goldman Sachs’ Santanu Sengupta expects the repo rate to be unchanged and so does the policy stance of withdrawal of accommodation, and expects the governor to sound optimistic on growth, and continue to reiterate the commitment to the 4% headline inflation target.
His pessimism comes from his estimate of food inflation remaining elevated above 7.5% in the first half of the year on the back of high cereals and pulses inflation along with the ongoing heatwaves but core inflation to remain under 4%, which will push the headline number to be remain above 5% in the first half and average at 4.7% for the full year.