RBI to hold rates at 6.50% through mid-2024, cut seen in Q3: Poll

The Reserve Bank of India (RBI) will keep its key interest rate unchanged at 6.50% for a fifth consecutive meeting on Dec. 8 as inflation worries ebb, according to a Reuters poll of economists who unanimously expect the central bank's next move to be a cut.

Despite inflation falling to a four-month low of 4.87% in October, it is expected to remain above the RBI's 4% medium-term target for at least another two years. That is likely to keep the RBI from changing its hawkish bias anytime soon.

All 64 economists in the Nov. 17-30 Reuters poll expected the central bank to hold the repo rate at 6.50% at the conclusion of its Dec. 6-8 meeting.

"We expect the Reserve Bank to stay put. We're not expecting a rate cut before Q3 2024," said Dhiraj Nim, economist at ANZ research.

"If they are beginning to see inflation aligning with the 4% target... for one or two meetings, it will be sufficient evidence for the RBI to start pivoting."

While the poll medians still showed the first rate cut coming in the third quarter of the calendar year, almost half of economists forecast it will come in the second or earlier.

Slightly more than half of respondents, 29 of 56, see the repo rate on hold at 6.50% through the middle of 2024, while 22 expect a quarter percentage point cut to 6.25% by mid-year. The remaining five see a half point cut to 6.00% by end-June.

More than three-quarters of a smaller sample of respondents, 33 of 43, said the repo rate would be at the poll median of 6.25% or lower by end-September. The remaining 10 said the repo rate would still be at the current 6.50%.

Inflation was forecast to average 5.4% this fiscal year that ends in March and 4.8% in fiscal 2024-25, still relatively high in the 2-6% target range even as the central bank starts to cut rates, a separate Reuters survey showed.

"I think the RBI's focus is to keep it at around 5%... They will be comfortable with it because of the volatile nature of food inflation and the kind of weather and climate risk that we are seeing," said Suman Chowdhury, chief economist at Acuite Ratings and Research.

"It is practically very difficult for the economy and the RBI to keep inflation well entrenched within or around 4%, except maybe for a few months."