A majority of analysts are now expecting the Reserve Bank of India to continue with a pause this year and cut rates in early-2024. Experts feel the cut in rates will start as inflation cools down, pencilled in after the release of the minutes of the last policy review earlier this month, where the six-member Monetary Policy Committee surprised all with a status quo.
The RBI has raised rates by a cumulative 2.50 percentage points since last May before opting for the pause due to persistently high inflation, which has overshot the upper tolerance band of 6 per cent for the bulk of the last year. "We expect the RBI to keep rates unchanged for the rest of 2023 and cut policy rates by 0.25 per cent in the quarter ending March 2024," economists at foreign brokerage HSBC said in a note.
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The note added that the 4 per cent inflation target is not in sight in the near future, and the RBI will not want to achieve it at the cost of lower growth. Domestic brokerage Kotak Institutional Equities said the minutes of the April MPC meeting highlighted members' increased concerns on the inflation outlook and added that there will be a prolonged pause in FY24 because inflation will continue to remain above 5 per cent.
Emkay said the minutes "fail to explain dramatic vote swing", and the extent of inflation concerns seemed to be varying among internal members. Japanese brokerage Nomura said the pause in April was a reluctant one, and the minutes indicate that other MPC members seem to agree with RBI Governor Shaktikanta Das that it's too early to signal an end to the hiking cycle and there will be a pause in June policy review.
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"Beyond June, while we think inflation is likely to marginally undershoot, we expect a more significant disappointment in growth. We maintain our view of 0.75 per cent in cumulative rate cuts, starting this October," it said. Nomura also said that there seems to be continued confusion around the 'withdrawal of accommodation' stance, and termed it as an enigma.
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