Jaipur, August 2024
The RBI Governor-headed six-member Monetary Policy Committee (MPC) decided to keep the benchmark repo rate unchanged at 6.5% and maintain the policy stance of ‘withdrawal of accommodation’. The MPC voted by a 4 to 2 majority to keep the policy rate unchanged. RBI retained real GDP growth estimates for FY25 at 7.2%, and CPI inflation projection at 4.5%. Stay tuned to our RBI policy.
This settles all the noise regarding expectations of stance change given a lower core inflation. RBI’s unchanged inflation projection for FY25 instills our confidence that inflation continues to remain on a declining trajectory with current food shocks to be transitory. This along with developing global monetary policy dynamics around expectations of FED monetary pivot in September-24, creates a space for our expectations of a domestic monetary policy pivot in December-24. We expect a stance change in October-24 given inflation remains on track, said Prashant Pimple, CIO-Fixed Income, Baroda BNP Paribas Mutual Fund.
Shanti Ekambaram, Deputy Managing Director, Kotak Mahindra Bank, said “The MPC’s decision to maintain status quo on policy rates and stance underscores their commitment to managing inflation and ensuring price stability. With food inflation contributing 46% of the total inflation basket, it’s critical to address this to prevent spillover risks to core inflation. Growth remains resilient, with steady urban consumption, emerging rural demand, stable manufacturing, and buoyant services growth projected over the next three quarters. The expectation of a normal monsoon further supports stability in agriculture.
In light of global financial market volatility, divergent stances by central banks worldwide, resilient domestic growth, and higher food inflation, the MPC’s decision to keep rates unchanged is prudent. The MPC’s focus on maintaining price stability and targeting sustainable inflation of 4% is clear. Seems like we must remain patient regarding any potential changes in stance or rate cuts.”
After today’s decision, India is positioned as an outlier in its interest rate stance, among the top economies. Most major economies like the US, Euro region and UK are facing high core inflation and low food inflation, unlike in India. Despite that there has been a shift towards dovish messaging. Japan was the only other major economy, apart from India, where food inflation is driving overall inflation. After the recent market fallout, BoJ is also sending dovish signals once again. I hope RBI can pivot at the most opportune moment to avoid falling behind the curve. Lowering borrowing costs will be in sync with PM Modi’s views on raising private sector investments, shared a few days ago during a CII meeting, said Debopam Chaudhuri, Chief Economist of the Piramal Group.
“The RBI expectedly kept rates and stance unchanged with unambiguous focus being retained on inflation. With growth remaining robust the MPC still has room to hold on to policy stance to get confirmation on the disinflationary trend. We continue to expect scope for change in stance in the October policy with rate cuts beginning from December. The prospects of simultaneous change in stance and rate cuts could increase depending on how domestic inflation and global environment transitions.” Said Upasna Bhardwaj, Chief Economist, Kotak Mahindra Bank.
A no change policy with the RBI keeping the repo rate and its stance unchanged. This decision to stay on course has been clearly guided by domestic factors even as rate cut expectations have risen globally. The overall tone of the policy seemed hawkish with the RBI highlighting the risks around stickiness in food inflation. The food inflation forecast was raised by 60 bps for Q2 FY25 to 4.4% and now inflation forecasts for the next four quarters all stand above 4%. With the RBI refraining from creating any space for a policy pivot, expectations of a future rate cut or change in stance will have to be pushed forward, said Abheek Barua, Chief Economist – HDFC Bank.
