Budget 2024 has raised possibility of RBI rate cuts of 50 bps this year, say foreign brokerage houses and banks

The interim Budget 2024 unveiled on Thursday has set the stage for Reserve Bank of India to go in for 50 basis points cut in repo rates this year, say foreign banks and brokerage houses.

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“With government gross borrowing programme likely to decline by 8.5 per cent YOY into the next year, G-Sec Yields (10 year) declined by 12 bps today (Thursday) to 7.06 per cent. The tight fiscal also increases the possibility of policy rate cuts by the RBI. We build in 50 bps rate cut by the RBI in 2HCY24 (second half of Calendar Year 2024)”, Jefferies, a foreign brokerage house, said in an equity research note post the interim Budget.

The Budget 2024-25 is fiscally tighter than market expectations, which is remarkable, given the upcoming elections, with no new social scheme announced or expanded, it added. This also possibly reflects the government’s confidence in re-election, Jefferies has said, adding the 16 per cent jump in capex is better than its expectations.

Jefferies sees the Budget as positive for interest rate sensitives like real estate, autos, PSU Banks and small private banks.

HSBC Research View

Meanwhile, Pranjul Bhandari, Chief Economist, India and Indonesia, HSBC, said in a research note that Budget 2024 was not inflationary (won’t add to inflation), giving room for RBI to ease later this year. This is precisely the winning stroke of this Budget, lowering the fiscal deficit, without imparting a negative impulse on growth, she added.

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As of January 12, 2024, all scheduled banks’ held G-Secs and State government securities amounting to ₹61,48,380 crore, according to RBI data.

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FIEO is hopeful that the regular Budget (full budget for 2024-25) of the new government, after the general elections, will take into consideration these demands.

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“We expect the RBI to ease liquidity over the next few months, using larger quantities of VRR. This is likely to be followed by a change in stance to neutral and repo rate cut of 50 basis points, starting in June 2024 (25 bps cut in June 2024 and 25 bps in August 2024)”, Bhandari added.

Goldman Sachs

Santanu Sengupta, Chief India Economist, Goldman Sachs, India said in a research note that the RBI is expected to keep the policy repo rate unchanged till Q3 CY24 (July-September).

Goldman Sachs Research feels that liquidity will continue to be actively managed by the RBI consistent with the monetary policy stance of “withdrawal of accommodation”.

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Goldman Sachs Research maintained its view that the RBI Monetary Policy Committee will keep the policy rate unchanged at the February 8 policy meeting at 6.5 percent, sound optimistic on growth, recognise the sharp fiscal consolidation in the interim budget and reiterate the commitment to the 4 per cent headline inflation target.

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Budget 2024 has raised possibility of RBI rate cuts of 50 bps this year, say foreign brokerage houses and banks