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Reserve Bank of India Maintains Rates, Yet Remains Poised for Cuts in Q4 2024
The Reserve Bank of India maintained interest rates at 6.50%, forecasting a 50bps cut by FY2024/25. Inflation risks and robust growth may delay easing until late 2024.
The Reserve Bank of India (RBI) held its policy repo rate and the standing deposit facility rate at 6.50% and 6.25% respectively for the ninth month at their August meeting.
Key View
- The Reserve Bank of India left interest rates unchanged at its August 2024 meeting, in line with broad consensus expectations. That said, we still forecast 50bps in interest rate cuts from the RBI in FY2024/25, with the first cut coming in Q4 2024.
- It is unclear whether the RBI will start its easing cycle in October or December, as October might be too early considering that inflation edged up slightly in June to 5.1% y-o-y, and the Bank remains very focused on its goal of lowering inflation given that growth remains robust.
- Given that food inflation remains elevated, we see slight upside risks to our forecast for cuts to 6.00% this year, but see balanced risks to our forecast for 50bps of cuts to 5.50% in FY2025/26.
We still expect the Bank to cut the policy repo rate by 50bps to 6.00% by the end of FY2024/25 (April-March). Similar to the last meeting, the Monetary Policy Committee voted 4-2 to keep policy unchanged and said it remains ‘focused on withdrawal of accommodation to ensure that inflation progressively aligns to the target, while supporting growth’. As was the case in their in June meeting, Governor Shaktikanta Das mentioned food-related risks to price stability given that they account for about 46% of the inflation basket.
The Reserve Bank of India (RBI) has maintained its current interest rates in the recent monetary policy meeting, a decision reflecting the central bank’s cautious stance amid fluctuating economic conditions. By holding the rates steady, the RBI aims to balance growth and inflationary pressures, ensuring stability in a post-pandemic recovery landscape. This decision signals a commitment to support the economy while monitoring inflation trends closely.
Despite the hold, analysts suggest that a cut in the interest rates is likely by the fourth quarter of 2024. The ongoing assessment of economic indicators, including inflation levels and GDP growth, indicates that potential cooling in consumer prices could pave the way for rate reductions. Should economic conditions improve further, particularly in sectors like manufacturing and services, the RBI might consider easing monetary policy to bolster investment and consumption.
As the RBI navigates these complex economic challenges, its strategic rate management becomes crucial in fostering a conducive environment for growth. A potential rate cut could invigorate lending and spending, ultimately reinforcing the recovery trajectory. Stakeholders across sectors will be keenly watching the RBI’s next moves, as they hold significant implications for the broader economic outlook.
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