Foreign banks expect the RBI’s six-member Monetary Policy Committee (MPC) to maintain status quo on interest rates in the upcoming June 5-7 monetary policy meeting, while remaining cautious on inflation.

RBI is also widely expected to maintain the stance as “withdrawal of accommodation” even while retaining its inflation forecast at 4.5 per cent and GDP growth forecast at 7 per cent for FY2024-25, said economists in these banks.

“At its meeting on June 7, we expect the RBI’s monetary policy committee to keep policy settings unchanged, with a 5-1 vote, and maintain the stance as withdrawal of accommodation,” Shreya Sodhani, Regional Economist, Barclays Bank, said on the June MPC preview note.

She also said that Barclays Bank Research does not expect majority of the MPC to see a reason to cut policy rates before December this year.

Food inflation persists

MPC is expected to keep policy settings unchanged given the still-robust growth outlook creating no urgency to cut rates, and inflation still being above target, driven mainly by food, according to Sodhani.

Since the MPC’s last meeting in April, inflation has continued to inch lower, though slowly, while growth indicators have broadly remained stable. 

Food prices remain of paramount importance: food inflation close to 8 percent y-o-y will keep the MPC concerned, despite core inflation having slowed to its lowest level in the series. “We think a majority of the MPC will continue to focus on “the last mile of disinflation” and await more certainty on monsoon rainfall and global commodity prices,” Sodhani said.

Barclays Bank Research expects expect four 25 basis points cuts by the RBI, even as it sees risks of a shallower cycle if the growth outlook remains robust.

“We continue to expect the window for a rate cut to open only in December 2024, with the central bank noting solid growth, which allows it to focus solely on inflation. Credit conditions still do not show signs of overtightening,” Sodhani added.

Policy rates to remain unchanged

Radhika Rao, Senior Economist, DBS Bank, said that most MPC members are likely confident about ongoing disinflation but will be wary regarding the course of food inflation over the next two quarters, amidst the prevailing heatwave and spread of the monsoon showers. 

“We expect limited haste from the central bank in lowering rates, dissuaded also by the volatility in the pricing of US rate cuts and associated swings in yields as well as the dollar. While keeping the benchmark rate on hold, the authorities continue to undertake timely regulatory action or macroprudential measures in the domestic financial system to address selected pockets of concern,” Rao added.

India’s central bank has kept policy rates unchanged for seven consecutive meetings, with RBI Governor Shaktikanta Das signalling his reluctance to ease rates unless inflation falls to its target of 4 percent. 

The timing of the first rate cut by the RBI remains a difficult question as domestic growth remains strong. This, along with a sticky trajectory for food inflation, has meant that some RBI MPC members may be reluctant to pivot towards monetary policy easing, said economists.