RBI MPC meet FY25: Repo rate to be same at 6.5%, say brokerages, banks

The Reserve Bank of India (RBI) is likely to keep the repo rate at the same level and maintain to its policy stance of 'withdrawal of accommodation' in the upcoming Monetary Policy Committee (MPC) meeting next month. The RBI has kept the repo rate unchanged since April 2023.

Foreign brokerages and banks, Goldman Sachs, Barclays and Morgan Stanley, have stated that the MPC may keep the repo rate on hold in the first half of the fiscal 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.   

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

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”.

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 the withdrawal of accommodation to ensure that inflation remains within the target going forward, while supporting growth’, Chachra said. 

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’."

Earlier this week, in a Reuters poll, 56 economists expected the RBI to hold the repo rate at 6.50 per cent at the conclusion of its April 3-5 meeting.

They were, however, divided on when the first cut would come, with nine of 52 saying next quarter, 24 picking the third quarter, 17 saying the fourth quarter and the rest expecting it at a later time. Median forecasts put the rate at 6.25 per cent by the end of September and 6.00 per cent at the end of this year.

"The combination of headline inflation remaining above 5 per cent and the strong Q4 GDP figures will likely leave Monetary Policy Committee (MPC) members cautious about cutting rates too soon," said Alexandra Hermann, a lead economist at Oxford Economics.

"While the year-long downward trend in core inflation will be seen as encouraging, MPC members will likely not deem this sufficient and rather err on the side of caution, waiting until the headline numbers are on a clearer downward path towards the 4 per cent mid-point target."

Madan Sabnavis, chief economist at Bank of Baroda, also predicted that Monetary Policy Committee will keep the repo rate unchanged at 6.50 per cent. "There will almost surely be no change in the repo rate...  The reason is that inflation still is at 5.1 percent...  Further, we have seen prices of onions going up. Also, reservoir levels have fallen sharply, which can indicate further stress on the food inflation front in the months to come as everything is dependent on the monsoon arriving on time," Sabnavis said.