Economists are adjusting their predictions regarding interest rate cuts in India, with expectations now pointing towards a delay until the final quarter of the year. According to the latest Bloomberg survey, rising inflation risks coupled with the US Federal Reserve’s decision to maintain rates have influenced this shift in forecasts.
The Reserve Bank of India (RBI) is anticipated to initiate rate cuts in the October-December period, potentially reducing the benchmark repurchase rate by a total of 50 basis points. However, economists suggest that the RBI might then pause for a few months. This differs from previous surveys where economists had anticipated a rate reduction in the July-September quarter.
Achala Jethmalani, an economist at RBL Bank Ltd., emphasizes the significance of monitoring global and geopolitical developments. Jethmalani notes that these factors, particularly decisions made by the US Federal Reserve, could impact India’s domestic rate scenarios.
Governor Shaktikanta Das and the RBI have maintained interest rates for seven consecutive meetings. Das has indicated a reluctance to ease rates unless inflation stabilizes around the central bank’s target of 4%. Although inflation eased to below 5% in March, concerns persist regarding potential spikes in food costs due to an unusually hot summer.
Economists have slightly lowered their quarterly inflation forecasts through December, while maintaining the projection for the full fiscal year at 4.5%. Most experts do not anticipate rate cuts by the RBI before any action by the US Federal Reserve, which may not occur until later in the year or even in 2024.
Radhika Rao, an economist at DBS Group Holdings Ltd., suggests that India’s rate cuts could be deferred to the next financial year starting in April 2025. Rao anticipates an extended pause by the RBI in fiscal year 2024-25, considering near-term inflation risks, robust growth, and the delay in US rate cut expectations.
According to economists surveyed by Bloomberg, projections for economic growth in the January-March quarter have been slightly raised to 6.3% from 6.1%. They anticipate the economy to expand by 6.7% in the full fiscal year ending in March, up from the previous estimate of 6.6%.
Shaun Lim, a currency strategist at Malayan Banking Bhd, suggests that the RBI should not rush into rate cuts nor feel compelled to increase rates further. Lim highlights the economy’s positive performance and the control over inflation as factors supporting the current stance.
As India navigates through evolving economic dynamics, the RBI’s decisions on interest rates will continue to be closely monitored by analysts and market participants.
