Foreign brokerages and banks expect the Monetary Policy Committee (MPC) to keep the repo rate unchanged at 6.5 per cent in the upcoming April 5 meeting. They also see the MPC retain its monetary policy stance of ‘withdrawal of accommodation’. 

They see the MPC keep the repo rate on hold even as the Central Bank continued to enjoy expanding space to cut interest rates, if needed. 

Goldman Sachs Research and Morgan Stanley Research see the RBI going in for two rounds of 25 basis points cut in the second half of this calendar year. 

As inflation has remained largely within the comfort range of the central bank, the RBI has kept policy repo rates steady since March 2023. 

Santanu Sengupta, Chief India Economist, Goldman Sachs India said, “With 1HCY24 headline inflation still above the RBI’s target, we maintain our view that the RBI will keep the policy repo rate unchanged at 6.5 per cent at the April 5 meeting, sounding optimistic on growth, acknowledge Jan-Feb average core inflation at 3.5 per cent, but continue to reiterate the commitment to the 4 per cent headline inflation target”.

Goldman Sachs Research has forecast one 25 basis points cut each in July-Sep 2024 and Oct-Dec 2024 quarter this year.

Rahul Bajoria, MD & Head of EM Asia (ex-China) Economics, Barclays, said, “Not much has changed since the last MPC meeting in February, with the RBI overseeing an economy enjoying high growth and falling core inflation, amid stable macro stability parameters”.

 Against this backdrop, we expect the MPC to keep the repo rate on hold at 6.5 per cent and maintain the monetary policy stance at a ‘withdrawal of accommodation’.

The RBI has dialled back its hawkishness on liquidity management since the February meeting, allowing weighted average call rates to drift lower, according to Bajoria.

Upasana Chachra, Chief India Economist, Morgan Stanley said in a recent research note that it sees RBI go in for two rate cuts of 25 basis points each, but pushed the first rate cut forward from its earlier expectation of June to August/September. 

“We further expect the RBI to retain its monetary policy stance (as signalled by the comment that they will ‘remain focused on withdrawal of accommodation to ensure that inflation remains within the target going forward, while supporting growth’, Chachra said. 

Noting that current cycle was similar to 2003-07, given growth was driven by capex and productivity, Morgan Stanley expects real rates to track about 150 points this cycle. In 2003-07, the average real policy rate averaged 190 basis points in that cycle.

“Indeed, the rising uncertainty from external factors and tighter global financial conditions have kept the RBI on vigil with a focus on liquidity management. In our view, the RBI will remain cautious and focus on maintaining real rates in positive territory for the domestic economy”, Chachra said. 

Meanwhile, with domestic growth data being robust, Barclays expects the RBI to increase its GDP growth forecast for FY24-25 to above 7 per cent representing only a small slowdown from around 8 per cent in FY23-24, even though momentum in high-frequency economic activity indicators has been more mixed recently.

“The RBI continues to enjoy widening policy optionality, amid high growth, falling core inflation, a manageable credit cycle and a small current account deficit. These factors point to expanding space to cut rates, if needed. But with no urgency to act, we see rates and the stance remaining on hold in April”, Bajoria said. 

Liquidity conditions have eased in the past few weeks, with ongoing balance of payments surpluses and pre-election spending likely to keep liquidity conditions in check, he added.