Foreign Banks expect the Reserve Bank of India (RBI) to keep policy rate unchanged at 6.5 per cent even as some see the central bank changing stance at the upcoming Monetary Policy Committee (MPC) meeting on October 7-9.
The upcoming MPC meeting will be the first for the three new external MPC members. The government has recently appointed Ram Singh, Saugata Bhattacharya and Nagesh Kumar as the new members of the MPC for four-year terms.
However most foreign banks expect RBI to go in for rate cut in the December MPC meeting.
Meanwhile, HSBC, a leading foreign bank, expects RBI to at the upcoming MPC meeting change its stance from a hawkish ‘Withdrawal of accommodation’ to ‘neutral’.
“Three developments stand out: softer growth numbers have trickled in recently, inflation has been falling, and the external environment has moved from rate hikes to rate cuts”, said Pranjul Bhandari, Chief Economist, India and Indonesia, HSBC Global Research in a research note.
“We think it will change its stance from a hawkish ‘withdrawal of accommodation’ to ‘neutral’ in the upcoming October 9 policy meeting, followed by repo rate cuts of 25 basis points each in the December and February meetings, taking the repo rate to 6 per cent”.
Policy rates
Barclays Regional Economist Shreya Sodhani said in a research note that RBI is expected to keep policy rates and stance unchanged at October 7-9 meeting, with at least one dissenting vote, likely from the new external members. “We expect the MPC to cut rates in December”, Sodhani said.
“By the December meeting, we expect the MPC members to have received enough data to suggest that m/m inflation pressures have eased and inflation is in comfortable territory, and for some moderation in activity to be more visible”.
Combined, this will likely open the door for a December rate cut by the MPC, with risks tilted towards a later than earlier cut, Sodhani added.
Radhika Rao, Executive Director & Senior Economist, DBS Bank Group said “The Central bank’s resolve in addressing food price inflation and preventing an un-anchoring in inflationary expectations is likely to see the MPC members lean towards a pause in October, with a softening in stance towards the December rate review. Geopolitics also warrant attention after the overnight escalation in tensions between Iran and Israel”.
For India, the US Fed’s decision is a necessary but not sufficient condition for the RBI monetary policy committee to shift expeditiously to a dovish gear, she added.
RBI has kept repo rate — which is rate at which it lends to banks —unchanged at 6.5 per cent since February 2023.