RBI unlikely to cut rates; Sustained vigil on inflation expected

An ET poll of 14 respondents unanimously predicted that at the end of its three-day meeting on June 7, the MPC is likely to keep the repo rate unchanged at 6.50% while maintaining its stance of withdrawal of accommodation. This would mark the eight consecutive review in which the RBI has maintained a status quo on the benchmark policy repo rate. The repo rate is the rate at which the RBI lends to banks.

"The policy commentary is likely to acknowledge the recent stability in the headline inflation and the favourable monsoon forecast, yet this will be balanced with a cautious tone on the fallout on food from extreme weather events, including the recent heatwave, and risks of higher oil on geopolitics. With a limited near-term need to shift to a dovish gear, the RBI is likely to join its regional peers to stay on hold this year," said , senior economist, .

While headline Consumer Price Index inflation was at 4.83% in April - well within the MPC's tolerance band of 2-6% - food inflation accelerated to a four-month high of 8.7%. Meanwhile, India's growth outstripped expectations and expanded 7.8% in Jan-March, lifting the full-year growth for FY24 to a world-beating 8.2%, provisional data showed.

Anchoring Expectations

The growth data suggests the economy is not in need of a booster shot in the form of lower borrowing costs that a rate cut by the RBI would represent.

If anything, the central bank may want to double down on its message that it will not loosen financial conditions before inflation shows a firm return to its 4% target.

"We push our RBI rate cut call back by one quarter to Q4 CY24 (vs. Q3 earlier), with the first cut most likely in the December 2024 meeting. We continue to expect a shallow easing cycle of total 50 bp (basis point) rate cuts from the RBI, with 25 bp rate cuts each in Q4 CY24 and Q1 CY25," said , chief India economist, .