Why RBI kept rate unchanged, when is a rate cut expected? Experts weigh in

Experts View:  Reserve Bank of India has kept repo rate unchanged at 6.5 per cent and projected GDP growth for FY25 at 7 per cent on Friday. Beating all expectations, RBI governor Shaktikanta Das kept growth forecast unchanged at 7 per cent, as Street was expecting an upward revision of growth forecasts in backdrop of more than expected and estimated growth witnessed by Indian economy in Q2 and Q3 of FY24. Similarly, RBI in its latest MPC decided to keep inflation forecast at 4.5 per cent in FY25. 

Here is what experts, economists, and industry people have to say about MPC outcomes:

Dharmakirti Joshi, Chief Economist, CRISIL

As expected, Monetary Policy Committee (MPC) of Reserve Bank of India (RBI) kept repo rate unchanged at 6.50 per cent. It has been 14 months since rate was last raised. That said, over last year, central bank did tighten monetary conditions by reducing liquidity. With inflation trends mixed, MPC prefers to wait for clearer signs of easing towards its 4 per cent target. Strong growth momentum in economy has provided it space to do so. While food inflation was above 8 per cent in most recent reing, non-food was way lower at 2.9 per cent. Core inflation at 3.4 per cent was well below RBI’s 4 per cent target. 

Rajani Sinha, Chief Economist, CareEdge

RBI’s MPC decision to leave policy rate unchanged was very much on expected lines. RBI governor highlighted that healthy economic growth gives room to Central Bank to continue its focus on containing inflation to 4 per cent target on a durable basis. Core inflation, including services inflation, has been moderating in last few months. However, main concern of Central Bank is persistent high food inflation and verse impact of that on household inflationary expectations. Expectations of a normal monsoon in current year bode well for food inflation. However, continuation of geo-political rifts and supply-side risks of same on commodity prices requires monitoring. Increased climate risks in domestic and global economy have emerged as anor big risk for food inflation in last few years.

Going forward, Central Bank can look at a real rate of interest of around 1-1.5 per cent. Hence as inflation moderates to around 4.5 per cent and as US Fed starts cutting rates, we can expect RBI to go for a shallow rate cut of around 50 bps in two tranches starting Q3 FY25.

Suman Chowdhury, Chief Economist and He of Research, at Acuité Ratings & Research

RBI MPC has kept status quo on interest rates and monetary stance in first meeting of FY25 and for seventh consecutive time. Not surprisingly, RBI has continued to reaffirm its commitment to disinflation and price stability without providing any guidance on timing of monetary policy pivot. central bank would continue to be watchful about increased crude oil prices and any upward risks in food inflation in near term, given forecast of an intense upcoming summer season. governor highlighted significance of keeping “elephant in forest” (a metaphor for high inflation) for a durable period.

growth expectations for RBI continue to be strong with GDP growth forecast for FY25 retained at 7.0 per cent, reaffirming strong momentum in domestic economic activity.

Sunil Kumar Sinha (Senior Director & Principal Economist) & Paras Jasrai, Senior Analyst at India Ratings and Research

As  India Ratings and Research (Ind-Ra) h expected, RBI in its monetary policy review on 5 April 2024 kept policy rate and stance unchanged. As a result repo rate continues to stand at 6.50 per cent, standing deposit facility at 6.25 per cent and marginal standing facility at 6.75 per cent. On policy rate front, RBI’s guidance concerning inflation and its trajectory during four quarters of FY25, suggests that RBI will remain cautious and watchful and is unlikely to change eir stance or policy rate any time soon as it does not want to fritter away gains me so far in combating inflation. According to RBI retail inflation is expected to come in at 4.9 per cent 1QFY25, 3.8 per cent in 2QFY25, 4.6 per cent in 3QFY25 and 4.5 per cent in 4QFY25.

Shishir Baijal, Chairman and Managing Director, Knight Frank India.

RBI's decision to keep REPO rate unchanged at 6.5 per cent, aligns with expectations and is greatly welcomed. This move towards maintaining stability in lending rates bodes well for real estate sector, which has been consistently growing. It also provides ded support to consumers, ensuring economic growth remains robust. Furrmore, Governor's optimism is bolstered by resilience in domestic macro fundamentals. With government’s revised GDP growth projection for FY 24 at 7.6 per cent, Manufacturing PMI hitting a 14-year high, strong Services PMI, and high FOREX reserves, sentiment is furr uplifted, promising sustained long-term growth for domestic economy.