Foreign Banks and Brokerages expect the Reserve Bank of India (RBI) to keep policy rates unchanged till December given the current bout of high food inflation being “persistent” and having led to higher inflation expectations. 

This would mean that most of these banks and brokerages don’t expect a rate cut in the  next MPC meeting slated for October 7-9. 

“We continue to expect the RBI to start easing from December 2024. We continue to expect only two rate cuts by the MPC in this cycle, in December and in April-June 2025, although we note risks of a delay to the start of the cuts”, Shreya Sodhani, Regional Economist, Barclays said in a research note post the MPC meeting that ended on August 8. 

RBI Monetary Policy Committee(MPC) on Thursday kept the repo rate on hold at 6.5 per cent for the ninth consecutive meeting. RBI has kept repo rate unchanged since February 2023. 

Meanwhile, post the August 2024 MPC review meeting, Radhika Rao, Executive Director & Senior Economist, DBS Bank said “we expect the RBI MPC to stay on hold for rest of 2024, only considering a change in February 2025 subject to domestic considerations”. 

A DBS Group Research note also highlighted that the composition of the MPC is likely to undergo a change as external members end their tenure at the start of September 2024. 

Also it highlighted that RBI has pushed back on calls for a rethink of the inflation target towards core/non-food segments rather than the headline, which includes the sticky food segment. 

Citing the close correlation between food and fuel movements to inflationary expectations, the central bank reiterated that headline inflation will remain as the main price target. With the currency bucking the broader dollar pullback, the RBI’s decision to keep rates on hold augurs well for the rupee, according to the DBS Research Note. 

DBS Group Research expects the US Fed rate to be lowered by 150 basis points by end-2024. 

It expects a shallower 50-75 basis points cuts from the RBI MPC to move to a less restrictive territory, given India’s strong growth profile and preference to preserve rate differentials, supporting the currency. 

Pranjul Bhandari, Chief Economist, India and Indonesia, HSBC Global Research had a slightly different take on the RBI rate cut. “We expect two RBI rate cuts of 25 basis points each in the current cycle, one in Q42024(Oct-Dec) and the other in 1Q2025, taking the repo rate to 6 percent. Given that growth is strong, we believe there will be an easing cycle, but a shallow one”. 

HSBC believes that it is the concerns around financial stability and the ongoing global turmoil that has kept the RBI hawkish even as monsoon rains and the prospects of food inflation falling have improved. 

Santanu Sengupta, Chief Economist, Goldman Sachs India said in a research note “We continue to expect a shallow easing cycle of total 50 basis points rate cuts from RBI, with 25 bp each in Q4 CY2924 and Q1 CY25, with the first cut most likely in the December 2024 meeting”

Going forward, the main thing to watch for the timing of the rate cut would be the trajectory of food inflation in India, which is largely dependent on weather conditions over the second half of the year, he said.

Upasana Chachra, Chief India Economist, Morgan Stanley said in a research note on RBI Policy review that the central bank remains vigilant of domestic inflation trends: The monetary policy statement reiterated the vigilance on trend in inflation and food inflation risks which can potentially adversely impact inflation expectations.

“As such we retain our view of RBI maintaining rates at 6.5 percent over our forecast horizon amid a robust growth trend warranting higher neutral real rates and headline inflation yet to align to the 4 percent target”, Chachra said.

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