Foreign brokerages, banks expect MPC to hold repo rate at 6.5%

Foreign brokerages and banks expect the Monetary Policy Committee (MPC) to keep the repo rate unchanged at 6.5% 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 the RBI going in for two rounds of 25 basispoint cut in the second half of CY24. 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 the RBI will keep the policy repo rate unchanged at 6.5% at the April 5 meeting, sounding optimistic on growth, acknowledge JanuaryFebruary average core inflation at 3.5%, but continue to reiterate the commitment to the 4% headline inflation target.”

Two cuts

Goldman Sachs Research has forecast one 25 bps cut each in JulySeptember and OctoberDecember quarters this year.

Rahul Bajoria, MD & Head of EM Asia (exChina) 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.

Repo on hold

“Against this backdrop, we expect the MPC to keep the repo rate on hold at 6.5% and maintain MPC at 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 Mr. Bajoria.

Upasana Chachra, Chief India Economist, Morgan Stanley said in a recent research note it sees the RBI go in for two rate cuts of 25 bps 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 they will ‘remain focused on withdrawal of accommodation to ensure that inflation remains within the target going forward, while supporting growth’, Ms. Chachra said.

(The writer is with The Hindu businessline)