The monetary policy committee (MPC) is expected to keep rates unchanged for the remainder of this fiscal amid weak agricultural output and tight global food supplies posing upside risks to inflation, and global market volatility, according to a Crisil Market Intelligence and Analytics report.

A rate cut is expected only in the first quarter of next fiscal, the analytics company’s economic research team said in its report RateView.

The MPC has hiked policy repo rate by 250 basis points during the May 2022 to February 2023 period from 4 per cent to 6.50 per cent to rein-in inflation. It has been on a pause mode in the five meetings held in the current financial year so far.

Crisil noted that the RBI is using liquidity and regulatory tools this fiscal to speed transmission of past rate hikes.

The MPC kept policy rates unchanged in its December meeting, while maintaining stance of withdrawal of accommodation.

The company expects consumer price index (CPI)-linked inflation to moderate to 5.5 per cent in fiscal 2024 from 6.7 per cent previous year.

Even as it flagged food risks to headline inflation, the report underscored that easing input cost pressures for manufacturers and moderating domestic demand in the second half of this fiscal are expected to ease core inflation.

Slowdown to continue

Stronger growth seen in the first half (H1) of FY24 at 7.7 per cent is projected to moderate to 6.9 per cent in H2, per Crisil’s assessment.

“We expect this slowdown to continue as global growth slows and the lagged impact of RBIs rate hikes slows domestic demand,” the report said.

Crisil assessed that current account deficit (CAD), occurs when the value of imports of goods and services is greater than the value of exports of goods and services, is projected to average 1.8 per cent of GDP in fiscal 2024 compared with 2 per cent of GDP in fiscal 2023.

“Lower international commodity prices and support from healthy services trade surplus and remittances will keep CAD in check,” it said.

Crisil’s economic research team expects the 10-year government security (G-Sec) yield to soften through March (to 6.95 - 7.05 per cent against 7.18 per cent in December 2023) supported by fiscal consolidation, downside to oil prices as global demand softens and continued foreign capital flows.