Goldman Sachs has pushed back its RBI rate cut call by one quarter to October-December 2024 from an earlier predicted period of third quarter (July-September 2024) of this calendar year. 

This global investment bank and foreign brokerage now sees the first cut from Reserve Bank of India (RBI) most likely in the December 2024 meeting. 

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“We continue to expect a shallow easing cycle of total 50 basis points rate cuts from the RBI, with 25 basis points rate cuts each in Q4 of calendar year 2024 and Q1 of calendar year 2025”, Santanu Sengupta, Chief Economist, Goldman Sachs India said in a research note on Monday.

Sengupta highlighted that Monetary Policy Committee (MPC) members from the RBI have recently sounded cautious on sticky food inflation and may want to see monsoons progress and the summer crop (Kharif) sowing to assess the food inflation outlook in 2HCY24, before pivoting towards monetary policy easing.

Inflation bottoming out

Meanwhile, Goldman Sachs sees India’s core inflation bottoming out in April-June 2024 and expect it to be around 4.0-4.5 percent in 2H CY24. 

These developments along with the fact that India’s growth momentum remains strong has prompted Goldman Sachs to push back its 2024 rate expectations. 

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This latest Goldman Sachs move to push back its 2024 rate easing expectations in India is significant as it comes a week before the six-member MPC are scheduled to meet on June 5-7 to decide on interest rates. 

MPC is widely tipped to maintain status quo  on interest rates in the upcoming June monetary policy meeting while remaining cautious on inflation.

Growth momentum

Goldman Sachs expect India’s investment growth momentum to sustain with extra fiscal space for infrastructure spending given a higher than expected dividend transfer by the RBI. As a result, Goldman Sachs had recently upped its India growth forecast for current calendar year by 10 basis points to 6.7 percent. 

India’s central bank has kept policy rates unchanged for seven consecutive meetings, with RBI Governor Shaktikanta Das signalling his reluctance to ease rates unless inflation falls to its target of 4 percent. 

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Sengupta said that the timing of the first rate cut by the RBI remains a difficult question as domestic growth remains strong, which, along with sticky trajectory for food inflation has meant that some RBI MPC members may be reluctant to pivot towards monetary policy easing. 

Fed’s rate easing

Further, there is some uncertainty on the timing of the Fed’s rate easing cycle as Goldman Sachs’ US economists continue to see rate cuts from the Fed as optional, which lessens the urgency to commence the easing cycle, he added.

The global investment bank’s US economics team pushed back its forecast for the US Fed’s first rate cut forecast by one meeting to September (from July previously) but still expect two rate cuts in calendar year 2024, with the second rate cut in December. 

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