Foreign Banks and brokerages continue to expect a shallow easing cycle of total 50 basis points from the RBI by end March 2025 even while noting that the RBI Governor Shaktikanta Das remarks on availability of “greater elbow room to pursue price stability” suggests easing of policy rates is far off.
Noting that the latest RBI monetary policy statement was “marginally hawkish”, Pranjul Bhandari, Chief Economist, India and Indonesia, HSBC Global Research, said “we expect a shallow rate cutting cycle of 50 basis points, taking the repo rate to 6% by March 2025”.
HSBC Global Research currently have a 25 basis points rate cut pencilled in for August, but risks are for it to be pushed to later (October).
She also said that HSBC Global Research was watching 3 developments and if they align, the RBI could give hints of looser monetary policy in the next meeting. The three things that would determine the easing timeline are monsoon rains; government budget and neutral rates, according to Bhandari.
Shreya Sodhani, Regional Economist, Barclays said that a majority of MPC remains hawkish on inflation, while an increase in its growth forecasts suggests no urgency to cut rates. “We now think the RBI will cut rates only twice in this cycle compared with our forecast of four cuts earlier. In our baseline, we think cuts come in December and Q2 25, although we note the risk that easing may be delayed”, Sodhani added.
Goldman Sachs Research continued to expect a shallow easing cycle of total 50 basis points rate cuts, with 25 basis points each in Q4 calendar year 2024 and Q1 calendar year 25. “The first cut will most likely be in the December 2024 meeting”, Santanu Sengupta, Chief Economist, Goldman Sachs India said in a research note.
Domestic priority
RBI Governor Das on Friday made it clear that while RBI does look at what advanced economies central banks are doing, it does not follow the US Fed and the RBI’s policy decision will be based on domestic considerations.
“We interpret this statement to mean that even if the Fed easing cycle gets pushed out because of US growth-inflation dynamics, the RBI can ease if inflation in India eases by Q4. On the other hand, if inflation in India stays sticky, the RBI is unlikely to ease even if a Fed easing cycle is underway”, Sengupta said.
“In our view, India’s FX reserves at $650bn+ will continue to allow the RBI to insulate FX transmission channel from US monetary policy cycle into domestic monetary policy. We have been highlighting that the Indian Rupee’s carry-to-vol ratio remains among the highest in EM FX, and we continue to like earning risk-neutral carry through our short EUR/INR recommendation”.