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Indian central bank likely to keep rates unchanged until at least July, Reuters poll shows

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BENGALURU: The Reserve Bank of India (RBI) will keep interest rates unchanged at least until July, a little longer than the US central bank is expected to do so, due to strong growth and inflation still high, according to a large majority of economists. interviewed by Reuters.

The Indian economy grew at a staggering 8.4% in the fourth quarter of 2023, the fastest among major economies. Inflation, which remains near the upper end of the central bank’s 2 to 6 percent target, does not point to an imminent rate cut.

All 56 economists polled in the Reuters survey from March 15-22 expected the RBI to keep the repo rate at 6.50 percent after its April 3-5 meeting.

They were, however, divided on when the first reduction would come, with nine of 52 saying the next quarter, 24 choosing the third quarter, 17 saying the fourth quarter and the rest waiting for it at a later date. Median forecasts put the rate at 6.25 percent at the end of September and 6.00 percent at the end of this year.

“The combination of headline inflation remaining above 5 percent and strong fourth-quarter GDP figures will likely cause members of the Monetary Policy Committee (MPC) to be cautious about cutting rates too soon.” , said Alexandra Hermann, senior economist at Oxford Economics.

“While the downward trend in core inflation over the full year will be seen as encouraging, MPC members are unlikely to deem this sufficient and will instead exercise caution, waiting for the headline numbers to be on a positive trajectory. clearer downward trend towards the 4 percent mid-term target.”

Inflation, at 5.09 percent in February, will decline to 4.00 percent in the third quarter before rising, according to poll medians. Price increases are expected to average 5.40 percent and 4.60 percent, respectively, in the current and next fiscal years.

Although growth is forecast to slow to 6.6 percent for the next fiscal year, from 7.6 percent in the current fiscal year – a significant improvement from the 7.0 percent forecast for this fiscal year barely a month ago – it would remain the fastest among the major economies. .

This would provide less incentive for the RBI to cut interest rates ahead of its major peers, particularly the Federal Reserve. The U.S. central bank is expected to make its first cut in June, according to another Reuters survey, but risks are growing that it will happen later in the year.

“While the Fed has already indicated that its policy rates are likely to be cut in the coming months, the dynamics of growth and inflation in India suggest that the RBI may simply keep its rates high for longer,” wrote Aditi Gupta, economist at Bank of Baroda.

“In any case, the Fed is likely to cut interest rates much more than the RBI, which will ensure that the interest rate differential stabilizes at a level close to the historical trend.”

(For more articles from the Reuters World Economic Poll:

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