MPC may keep repo rate, stance unchanged at FY25's 1st meet: BS Poll

The six-member Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) is expected to keep both the policy repo rate and the stance unchanged in the first policy review of 2024-25, all the 10 respondents said in a Business Standard poll.

The RBI will announce the review of the policy on April 5.

After increasing the repo rate by 250 basis points (bps) to 6.5 per cent between May 2022 and February 2023, the domestic rate-setting panel kept the repo rate unchanged in all the six policy review meetings in 2023-24.

“The upward revision in the National Statistical Office’s gross domestic product (GDP) growth estimates for Q1-Q2 FY2024, three successive quarters of 8 per cent plus GDP expansion, and the CPI (consumer price index) print of 5.1 per cent for February 2024, suggest the status quo on rates and stance in the upcoming April 2024 meeting,” said Aditi Nayar, chief economist, ICRA.

“ICRA believes the policy stance is unlikely to be changed before the August 2024 MPC review, until there is visibility on the monsoon turnout as well as the sustenance of growth momentum and the US Fed’s rate decisions,” she said.

US Federal Reserve officials reiterated their intention to cut the key interest rate three times in 2024, despite persistent signs of unexpectedly high inflation at the year’s outset. However, they anticipate a moderation in rate cuts for 2025, accompanying a slight upward adjustment in their inflation projections. The Fed kept its benchmark interest rate unchanged for the fifth consecutive meet.

On the domestic front, the headline inflation rate remains within the RBI’s tolerance band of 2-6 per cent. The inflation rate held steady at 5.09 per cent in February, marginally up from the previous month’s 5.1 per cent, largely due to an uptick in food inflation. In its economic review before the Budget, the finance ministry had forecast the Indian economy would grow nearly 7 per cent in FY25.

In the January update of the World Economic Outlook, the International Monetary Fund (IMF) indicated that growth in India was projected to remain strong at 6.5 per cent in both 2024 and 2025. They noted an upgrade of 0.2 percentage points for both years compared to October 2023, reflecting resilience in domestic demand.

A majority of the respondents expect the RBI to start cutting rates in the third quarter of 2024-25 while three of them see “the window to cut rates opens up in Q3FY25. The incoming data, weather conditions in the advent of hotter summer months and global rate cut cycle would be key inputs in determining the policy action”, said Achala P Jethmalani, economist, RBL Bank.

All respondents were unanimous in saying the RBI would continue with the “withdrawal of accommodation” stance.

RBI Governor Shaktikanta Das had said in the February meeting the stance was intricately tied to rates.

He said the MPC’s stance of “withdrawal of accommodation” should be understood in the light of incomplete transmission and inflation persisting above the 4 percent target, along with the domestic rate-setting panel’s concerted efforts to restore it to the target level on a durable basis.

Vikas Goel, managing director and chief executive officer, PNB Gilts, said: “The rationale the governor gave for the stance still exists today. It’s not that the lending rates have gone up. They have stayed where they were at the last MPC. Unless they (MPC members) have a change of mind on how they have defined the logic of the stance but if they go with the same definition or the same reasoning which they used at the last MPC, then they should continue with the same stance.”