Reserve Bank of India to delay interest rate cut to late this year: Poll

The Reserve Bank of India will cut interest rates just once this year, most likely in October-December rather than next quarter, although there was no clear majority among economists polled by Reuters on the timing of the first move.

With a growing likelihood many major central banks, including the US Federal Reserve, delay cutting interest rates, there is little upside for the RBI to step in front.

With near-8 per cent growth, the fastest among major world economies, and above-trend inflation there is also little urgency for the RBI to begin cutting rates unless concerns emerge about a slowdown.

All but one of 72 economists in a May 17-30 Reuters poll expected the RBI to hold the repo rate at 6.50 per cent at the conclusion of its June 5-7 meeting, just a few days after election results are due.

"Taking a leaf out of the global monetary policy playbook, the RBI too is likely to err on the side of caution and adopt a significantly restrained approach to rate cuts," said Aditi Gupta, an economist at Bank of Baroda.

"Given how the domestic growth and inflation dynamics have been placed, we do not foresee a possibility of the RBI preceding the Fed."

Nearly half of economists surveyed, 33 of 71, predicted the RBI's first repo rate cut would take place in Q4 2024, giving a median forecast of 6.25 per cent. In April, the most popular choice for the first cut was Q3.

By end-2024, 33 of 71 said rates would be 25 basis points lower at 6.25 per cent, 15 said 6.00 per cent, and five expected 5.75 per cent or lower. The remaining 18 forecast no rate change this year.

Those predictions come despite widespread expectations inflation will stay above 4 per cent, the mid-point of the RBI's preferred 2 per cent-6 per cent range, this year and next.

At 4.83 per cent in April, inflation is expected to dip to 4.00 per cent next quarter before rising in subsequent quarters, the poll showed, averaging 4.5 per cent this fiscal year and next.

Economic growth was forecast to average 6.8 per cent this fiscal year and 6.6 per cent next.

"With the still-robust growth outlook creating no urgency to cut rates and inflation still above target, driven mainly by food ... we do not expect the majority of the MPC to see a reason to cut before December," Shreya Sodhani of Barclays noted.

While a smaller number of forecasters provided rate views well into next year, median forecasts showed no further cuts beyond 6.00 per cent.