By Swati Bhat
MUMBAI- India’s central bank is likely to keep rates steady on Wednesday, with a small number of investors betting on the probability of a change in stance to neutral, opening the door to rate cuts as economic growth slows and global rates ease.
The Reserve Bank of India (RBI) is seen maintaining the repo rate at 6.5 percent for a 10th straight meeting with more than 80 percent of the 76 economists in a Reuters poll forecasting no change in rates. It has held the repo rate steady since February 2023.
A dozen economists predicted a 25 basis-point cut, while one anticipated a drop to 6.15 percent. Nomura economists said they see a 55 percent probability of a rate cut in October while acknowledging it would be a close call.
Market participants believe the US Federal Reserve’s 50-bp rate cut last month may prompt the RBI to start cutting rates sooner rather than later, with most now pricing in a December rate cut versus early 2025 previously.
“Given the undershooting in the initial Q1 GDP growth relative to the MPC’s forecast, and the likely sizeable undershooting in the Q2 CPI inflation print as well, we believe a stance change to neutral may be appropriate in the October 2024 policy review,” said Chief Economist at ICRA Aditi Nayar.
India’s economic growth slowed to 6.7 percent in the April-June quarter from a year earlier as a decline in government spending during national elections weighed, but it remained the world’s fastest-growing major economy.
High frequency indicators such as the manufacturing PMI slowed to an eight-month low in September, while services PMI eased to a 10-month trough, latest data showed.
Annual retail inflation remained below the central bank’s target of 4 percent for a second consecutive month, clocking in at 3.65 percent in August, higher than the revised 3.60 percent in July and economists’ forecast of 3.5 percent. – Reuters
