The spotlight has turned on the Reserve Bank of India (RBI) regarding when it will start cutting interest rates after the US Federal Reserve signalled three reductions in 2024.
While the central bank led by governor Shaktikanta Das has on numerous occasions in the past said the RBI’s actions are not determined by the Fed, it could offer some relief to home loan borrowers in the middle of calendar year 2024 when it starts looking at easing borrowing costs, economists said.
Till then, it is expected to remain in an extended pause mode. The monetary policy committee (MPC) has increased the policy repo rate by 250 basis points from May last year till February 2023.
``Fed’s dovish comments portend three rate cuts in calendar year 2024 and have turned market sentiment decisively. We expect the RBI to follow suit with concurrent rate cuts,’’ analysts at Emkay said in a note.
The RBI, which has often been accused of falling behind the curve last week, was not given any guidance on the future interest rate trajectory given the risks to inflation particularly on account of volatile food prices. It has also been harping on a sustained fall in inflation as a precursor to an eventual cut.
Last Friday, the MPC said while the unpredictibility of domestic food inflation and volatility in crude oil prices and financial markets in an uncertain international environment pose risks to the inflation outlook, it would carefully monitor any signs of generalisation of food price pressures to the rest of the economy.
Yet, economists are of the view that an interest rate cut will happen in the next year though they are quick to add that it will not be an aggressive one as the RBI will watch out for a durable fall in inflation to 4 per cent levels. It is also expected to happen in the 2024-25 fiscal year and not before that.
``We foresee a shallow rate cut cycle of 50-75 basis points to commence in India from August 2024,’’ Aditi Nayar, chief economist, Icra, told The Telegraph.
According to Aastha Gudwani, India economist at BofA Securities, despite continued disinflation, the headline number still has some room to achieve the 4 per cent target. This would keep deep and immediate rate cuts by the RBI at bay.
