Mumbai: Analysts and leading bankers don't see a rate cut cycle beginning anytime soon -- not in the first half of the current fiscal for sure -- given the Reserve Bank's resolve to tie the inflation elephant in the forest for a durable time.
Both domestic and foreign analysts see only a "shallow rate cuts of 25 bps each beginning in the third quarter of the fiscal" as growth remains strong thus needing no special attention, and inflation remains sticky with more upside risks on the horizon.
Earlier in the day, the central bank-led monetary policy committee in a 5:1 vote chose to leave all the key rates unchanged with the key repo retained at 6.5 percent, something the committee had whacked up last time in February 2023.
Since then in the successive seven reviews, it has been status quo on both the policy front as well as on the stance which is to continue to withdraw accommodation.
The status-quoish policy comes from the MPC's assessment of the continuing domestic growth momentum and thus maintaining its GDP projection of 7 percent for FY25 and seeing inflation continuing to trend down and averaging at 4.5 percent by March.
The MPC will likely contemplate a shallow two-steps 25-50 bps rate cut cycle from Q3FY25, analysts at State Bank, rating agencies CareEdge and India Ratings, and the Wall Street major Goldman Sachs said.
While others barring India Ratings see 25-50 bps cut in the second half, the former sees an easing cycle to begin from the second half in the range of 50-75 bps.
All of them expect the main work of the RBI will be managing liquidity going forward even as it maintains withdrawal of accommodation stance.
Overall, the macroeconomic environment is turning favourable for a rate cut in mid-2024, if the weather and crude do not play spoilsport, Crisil Ratings said, without offering a timeline or quantum of the rate reduction.
Meanwhile, bankers led by the SBI chairman Dinesh Khara hailed the policy and other regulatory and developmental moves by the central bank.
The monetary policy statement is an affirmation of goldilocks for the country with high growth and low inflation in FY25 and FY26. Consumer confidence in urban households continues to improve, while rural demand remaining upbeat, Khara said.
He also noted the regulatory policies continuing to deepen the payment systems with new functionality in UPI. The review of the LCR framework with the advent of 24/7 payment systems can act as a positive enabler to address frictional liquidity mismatches, the chairman of the largest lender said.
MV Rao, the chairman of the bankers lobby Indian Banks Association, said permitting the eligible foreign portfolio investors to invest and trade in sovereign green bonds in the IFSC can further improve the flow of resources towards this product.
Permitting small finance banks to deal with rupee interest rate derivatives can help them use this tool for hedging, Rao said.
