RBI not likely to cut benchmark repo rate before Q2FY25: SBI Report

Policy repo rate is unchanged since April monetary policy

The Reserve Bank of India (RBI) is unlikely to cut the benchmark repo rate which is at 6.5 per cent now before Q2FY25 under any circumstances, according to a report by State Bank of India (SBI).

The report authored by Soumya Kanti Ghosh, Group Chief Economic Adviser, State Bank of India said, the central bank will maintain status quo in the upcoming monetary policy, which will be announced on 8 December.

Using Artificial Neural Network (ANN) Model of Machine Learning, the report constructed 4-Scenarios of repo rates and the results showed 6.5% is now the new normal.

“Domestically, we believe at 6.50 per cent, we are in for a prolonged pause, no rate reversal cycle till June ’24 stance,” the report said.

“We believe the stance should continue to be withdrawal of accommodation as inflation is unlikely to tread below 5 per cent in rest of FY24; as amidst the structural change in liquidity is making its forecasting difficult, it should be looked at with a completely different prism,” it added.

Between May 2022 to October 2023, the RBI had cumulatively increased rates by 250 bps. The repo rate was kept unchanged since the April review of the monetary policy.

As per the report, the growth is expected to remain resilient with risks mostly stemming from sources outside of India. Higher oil prices pushing up inflation, and tighter global financial conditions are key risks weighing on currency inflation and growth dynamics.

The overall credit of All Scheduled Commercial Banks (ASCBs) rose by 20.6 per cent year-on-year (Y-o-Y) as of November 17, 2023 as compared to 16 per cent last year. At the same time, Housing/Commercial Real Estate grew more than 35 per cent Y-o-Y and aviation clocked a growth of 67 per cent on-year. Credit to NBFC sector reported 22 per cent growth Y-o-Y.

“Overall, industry credit reported growth of 6 per cent. However, sectors such as chemicals, metals, textiles, glass, and food processing reported double-digit growth. In infrastructure, roads reported 9 per cent growth while telecommunication and railway reported growth of 7 per cent each,” the report added.

On the agricultural front, the wheat sowing deficit narrowed down to 5 per cent for the week of November 24. However, the sowing of major wheat, pulses and some oilseeds has seen a minor delay this year on account of the late harvest of kharif-grown paddy in a few states due to El Nino’s adverse effects.

The report also noted that CPI inflation is expected to come around 5.4-5.5 per cent by March 2023, although November and December inflation could go beyond 6 per cent.

“With inflation expected to come down further, MPC is likely to maintain the status quo this fiscal,” said the report.