Foreign banks and brokerages expect a status quo on policy rate at 6.5 per cent at the upcoming RBI\u2019s Monetary Policy Committee (MPC) meeting on August 6-8. They further expect the RBI to retain its monetary policy stance as \u201cwithdrawal of accommodation\u201d.\u00a0<\/p>\n
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Inflation breaching the 5 per cent mark in June and persistent pressure on the headline rate from elevated food prices will likely drive the decision to maintain the status quo, they noted.\u00a0<\/p>\n
\u201cEnduring upward food price pressure on headline inflation will likely keep the MPC cautious in August. We expect the MPC to keep policy settings unchanged in a 4-2 vote\u201d, Shreya Sodhani, Regional Economist, Barclays said in a Research Note on August MPC preview.\u00a0<\/p>\n
With no urgency to cut rates given steady growth, Barclays see a risk of rate cuts being delayed beyond December.\u00a0<\/p>\n
\u201cWe continue to expect the window for a rate cut to open only in December 2024, but see the risks that the first cut will be delayed into 2025\u201d, Sodhani said. Recent communication by the RBI has turned increasingly cautious over elevated food inflation, which continues to prevent durable disinflation in the headline rate, she added.\u00a0<\/p>\n
Santanu Sengupta, Chief Economist, Goldman Sachs India said in a research note \u201cWe expect the RBI MPC to keep the policy repo rate unchanged at the Aug 8 meeting at 6.5 per cent, with a 4:2 vote in favour, retain the monetary policy stance of \u2018withdrawal of accommodation\u2019, sound relatively optimistic on growth, and continue to reiterate the commitment to the 4 per cent headline inflation target\u201d.<\/p>\n
After an upside surprise in Jan-March 2024 real GDP growth, recent growth signals have been mixed, and Goldman Sachs expects muted urban consumption going forward even as rural activity is seeing nascent signs of a recovery. \u201cElevated and broad-based food inflation has kept H1 CY24 headline inflation near 5 per cent yoy, even as core inflation continued to decline. Going forward, even though a high base last year is going to pull headline inflation down towards 4 per cent in July-September 2024, there are upside risks to food inflation due to an uneven monsoon\u201d, Sengupta added.<\/p>\n
Radhika Rao, Executive Director and Senior Economist, DBS Bank, said \u201cWe expect a status quo on rates in the August meeting, with an extended pause until end-year\u201d.\u00a0<\/p>\n
She noted that the natural rate framework tabled by a RBI staff study, perceived as a gauge of the underlying policy stance, implied that the economy is on a stronger output trend, reducing the need for additional stimulus by way of rate cuts.<\/p>\n
Markets will also monitor the US Fed\u2019s policy bias at the September meeting, as the markets price in a near-certain rate cut. A clearly dovish forward guidance by the Fed is likely to open the door for Asian central banks to shift to a less restrictive policy, with the RBI expected to join its peers but with a lag, Rao added.\u00a0<\/p>\n