The Reserve Bank of India (RBI) is widely expected to retain the repo rate at 6.5 per cent on April 5 and reiterate its goal to bring inflation down to the mandated 4 per cent, taking a different course from the US Federal Reserve, which has guided for three cuts this year. The monetary policy committee of the RBI is meeting in Mumbai from April 3 to April 5.

The repo, the benchmark rate to which home and other loans are priced, was raised last on February 2023.

Economists said with the growing risk of inflation, there is no urgency on the part of the Monetary Policy Committee (MPC) to act on interest rates at this point in time. Inflation itself is at 5 per cent, and a resilient economy and the possibility of food price shocks will put more pressure on it.

For now, the interest rate setting panel is also not expected to give any timeline of a rate cut, in line with its earlier view that any change will be dependent on a sustained and durable fall in inflation.

Aditi Nayar, chief economist, Icra, said that there would be status quo on rates and stance — withdrawal of accommodation — in the forthcoming meeting given the upward revision in the NSO’s GDP growth estimates for the first and second quarters of fiscal 2023-24, three successive quarters of 8 per cent plus GDP expansion and the CPI print of 5.1 per cent for February 2024.

“Icra believes that the policy stance is unlikely to be changed before the August 2024 MPC review until there is visibility on the monsoon turnout as well as on the sustenance of the growth momentum and the US Fed’s rate decisions,” she said.

A note from CareEdge pointed to some positive factors on the price front: retail inflation was steady at 5.1 per cent in February and remained within the RBI’s upper target of 6 per cent for the sixth consecutive month.

Core inflation — inflation minus food and fuel prints — continues to trend lower staying below the 4 per cent mark in the last three months.

Besides, services inflation has been on a downward trajectory helped by a broad-based easing across the housing, transport and education categories.

“We project inflation to average at 5.4 per cent in 2023-24 and 4.8 per cent in 2024-25.
RBI to maintain status quo on both rates and stance in its upcoming policy meeting,’’ it added.

CareEdge expects any cut is likely to commence only in the second half of this calendar year. It could also be a measured one with two reductions of 25 basis points each.

“The RBI is likely to start rate cuts in the fourth quarter of 2024 as the Fed starts cutting rates in the second half of the year. The rate cut cycle is expected to be shallow (25 basis points each in the fourth quarter of 2024 & a first quarter of 2025).’’

According to Goldman Sachs Research, there will be one 25-basis-point cut each in July-September 2024 and October-December.

Brokerage Morgan Stanley also expects two reductions of 25 basis points each beginning August/September.