'In October MPC meeting, we can expect the first rate cut': Samiran Chakraborty of Citibank

Ahead of the Reserve Bank of India's (RBI) Monetary Policy Committee's press conference tomorrow, Dr Samiran Chakraborty, MD, Chief Economist, India, Citibank, said that the central bank is expected to stick to the same interest rate at least till October. Therefore, interest rate revision can be expected in October, only after the Fed cycle starts. 

"At this juncture, we expect a status quo policy, where both the stance and the rates remain unchanged. With the little bit of volatility we saw recently, it is not the right time to change the rates and rock the boat further with any more changes. They will also wait for the fiscal outcome next month in the budget. By August, we will have an idea about how the monsoon has played out. Maybe they will tinker with the stance in the August policy and then in the October policy we can expect the first rate cut,"  Chakraborty told BT TV on Thursday. 

The last time the repo rate was changed from 6.25% to 6.50% was on 8th February 2023. 

Talking about the current inflation rate, "We were a bit lucky that the heatwave came after the winter cropping was done. With that, we can say the entire winter crop was saved. But there could be some effect on the quality of the vegetables. Also, the preservation of vegetables can also get affected due to the heatwave. All this can have an impact on the food inflation going further. However, we have already seen a unique impact on egg prices, chicken prices, protein items, where we saw jump in prices month-on-month. This has pushed our inflation forecast again to above 5%. It is expected to be 5.2% next week when the data comes out," Chakraborty said.

He further added that there could be some relief in terms of inflation, but not for very long. "We are going to be very lucky very soon. In a couple of months, you may see inflation numbers dipping to 3% or so. However, that is not going to sustain for very long. We may see it again rise up above 4% in the latter part of the year. For the full fiscal year, we are looking at 4 to 4.5%."  

It is to be noted that in its research paper, even the State Bank of India said that the Reserve Bank of India would cut rates only in the third quarter. 

The lender said that strong evidence of emerging economy central bank rate actions are predicated by advanced economy central bank rate actions but India is an exception. 

It said that the first rate cut by RBI is expected in Q3 FY25, and that too such a rate cut cycle is likely to be shallow measures to augment liquidity. 

The SBI highlighted that India’s economy grew by 8.2 per cent in FY24 as compared to 7 per cent in FY23. “The 3-year moving average is highest at 8.3 per cent since FY15. Given a historical ICOR of 4.3 and gross investment rate at 33.3 per cent as per professional forecasters, 7.5 per cent growth for FY25 could be a reality!” it said. 

June MPC meeting
 
Most economists maintained that the RBI will continue with its  status quo on the rates and stance in the upcoming June 2024 monetary policy review.

"The recent inflation data and the outlook for prices of food and commodities had suggested a status quo on the rates and stance in the upcoming June 2024 monetary policy review. This has been further cemented by the higher-than-forecast expansion in the Indian economy in Q4 FY2024, which led to the full year GDP growth printing above 8%. As a result, the likelihood of a stance change in August 2024 followed by a rate cut in October 2024 has eased, unless an abundantly well distributed monsoon quells food prices in a sustainable fashion," said Aditi Nayar, Chief Economist, Head of Research and Outreach at ICRA Ltd.

“RBI is expected to keep key policy rates unchanged at the forthcoming MPC meeting announcement on June 7. However, the guidance is expected to turn slightly more dovish compared to the previous meeting. RBI has declared a record dividend this year, more than double of that projected in the budget. Oil prices have remained range bound notwithstanding the recent escalation in geopolitical in Middle East, Tax collections remained robust with GST exceeding the Rs 2 lac crore mark for the first time in April 2024. Further, there has been slight easing in financial conditions at global stage after fed literally ruled out any further hikes but guided for more patience with rate cuts," said Mahendra Kumar Jajoo, CIO- Fixed Income, Mirae Asset Investment Managers.

"Since the MPC last meeting, geopolitical volatility rose in the first half of April, and though it appears to have subsided post that, underlying tensions continue to simmer. Furthermore, global markets now anticipate the Fed to be on a “longer than anticipated hold” as compared to March. Thus, in the current environment, though India’s headline inflation is expected to moderate further, we feel that the RBI is unlikely to make changes to both – policy rate as well as the stance of the policy,” said Vikrant Mehta, Head - Fixed Income, ITI Mutual Fund.