New Delhi, August 09, 2024.
RBI governor Shaktikanta Das announced Monetary Policy decision on (August 8). The Monetary Policy Committee (MPC) held its third bi-monthly policy meeting from August 6 to August 8. RBI kept its key interest rate unchanged, as widely expected, as the central continued its efforts to sustainably lower inflation towards its 4% target.
Anu Aggarwal, Head – Corporate Banking, Kotak Mahindra Bank said, “RBI’s decision to hold the repo rate at 6.5% for the ninth consecutive time was on expected lines amid persistent inflationary pressures with June inflation coming in at 5.1%, and food in particular running away at 8.4%. We need to watch out for Fed action in September when a rate cut is near certain which will set the stage for our own likely cut by December. RBI’s commitment to inflation target of 4% while our GDP growth is on track I seems the right thing to do.”
This settles all the noise regarding expectations of stance change given a lower core inflation. RBI’s unchanged inflation projection for FY25 instills our confidence that inflation continues to remain on a declining trajectory with current food shocks to be transitory. This along with developing global monetary policy dynamics around expectations of FED monetary pivot in September-24, creates a space for our expectations of a domestic monetary policy pivot in December-24. We expect a stance change in October-24 given inflation remains on track, said Prashant Pimple, CIO-Fixed Income, Baroda BNP Paribas Mutual Fund.
After today’s decision, India is positioned as an outlier in its interest rate stance, among the top economies. Most major economies like the US, Euro region and UK are facing high core inflation and low food inflation, unlike in India. Despite that there has been a shift towards dovish messaging. Japan was the only other major economy, apart from India, where food inflation is driving overall inflation. After the recent market fallout, BoJ is also sending dovish signals once again. I hope RBI can pivot at the most opportune moment to avoid falling behind the curve. Lowering borrowing costs will be in sync with PM Modi’s views on raising private sector investments, shared a few days ago during a CII meeting, said Debopam Chaudhuri, Chief Economist of the Piramal Group.
A no change policy with the RBI keeping the repo rate and its stance unchanged. This decision to stay on course has been clearly guided by domestic factors even as rate cut expectations have risen globally. The overall tone of the policy seemed hawkish with the RBI highlighting the risks around stickiness in food inflation. The food inflation forecast was raised by 60 bps for Q2 FY25 to 4.4% and now inflation forecasts for the next four quarters all stand above 4%. With the RBI refraining from creating any space for a policy pivot, expectations of a future rate cut or change in stance will have to be pushed forward, said Abheek Barua, Chief Economist – HDFC Bank.