MPC Poll: Economists and bankers predict that the RBI will maintain key interest rates in its June monetary policy

The six members of the RBI's Monetary Policy Committee will convene from June 5–7 to determine interest rates.

According to Moneycontrol's survey of 20 economists and bankers, the Monetary Policy Committee (MPC), chaired by the Reserve Bank of India (RBI), is probably going to keep things as they are in the forthcoming June monetary policy while continuing to be cautious about inflation.

The central bank will stick to its "Withdrawal of Accommodation" policy, according to the majority of analysts. Two economists, nevertheless, predicted that it would be adjusted to neutral.

According to DBS Group Research's Executive Director and Senior Economist Radhika Rao, the policy statement is expected to recognize the recent stability in headline inflation as well as the IMD's favorable monsoon outlook.

"A cautious tone will be maintained regarding the impact of extreme weather events, such as the recent heatwave, on food and the potential consequences of rising oil prices on geopolitics," Rao said.

"May, which is now tracking at 4.9 percent, will be the most recent CPI reading at the time of the June MPC. The general tenor will be cautious over the dangers of food inflation since heat waves may cause prices for perishable goods like vegetables to rise. Once half of the monsoon season has passed or by the August/October RBI policy, more information on the danger of food inflation will be accessible. Nevertheless, comfort over core inflation is anticipated to be maintained, with an estimated 3 percent as of May 2024, according to IDFC First Bank Chief Economist Gaura Sen Gupta.

For the sixth time in a row, the central bank maintained the 6.50 percent repo rate at its April monetary policy. The repo rate has not changed since the monetary policy announcement in April 2023 by the RBI. This came following indications of a slowdown in inflation.

Previously, beginning in May 2022, the MPC increased the repo rate gradually by 250 basis points (bps). One tenth of a percentage point is known as a basis point.

Forecast of inflation

The central bank is expected to stick with its inflation projection, according to economists and bankers, since headline inflation is slowing down and the IMD's monsoon forecast is favorable.

The RBI is probably going to stick with its growth and inflation predictions for FY25, according to HDFC Bank economist Swati Arora.

Inflation for April has also somewhat decreased, coming in at 4.83 percent. It is anticipated that this good trend will continue, according to Kinara Capital's founder and CEO, Hardika Shah.

The RBI predicted 4.5 percent CPI inflation at its April MPC for the fiscal year 2024–2025, with Q1 at 4.9 percent, Q2 at 3.8 percent, Q3 at 4.6 percent, and Q4 at 4.5 percent.

Official retail inflation in India for the month of April was 4.83 percent, according to figures issued on May 13 by the Ministry of Statistics and Programme Implementation.

At 4.85 percent in March, the Consumer Price Index (CPI) inflation rate reached a 10-month low.

GDP figures

The majority of analysts think that the central bank would stick to its GDP estimate for India. According to Ujjivan Small Finance Bank's Head of Treasury Rajeev Pawar, "GDP projections are expected to remain flat."

Achala Jethmalani, an economist at RBL Bank, claims that the FY24 GDP numbers have consistently exceeded market forecasts, and there's a good chance that this would be the case again. After a record GDP print of around 8.4 percent YoY in Q3FY24, Jethmalani said, "We estimate the Q4FY24 GDP growth is likely to be more normalized at 6 percent YoY, basis statistical trends and lead indicators."

Now, the Statistics Ministry anticipates even stronger full-year GDP growth than its initial advance estimate of 7.3 percent, which was surprisingly high. Although experts had predicted that GDP growth would drop to 6.9 percent, the second advance projections now place it at 7.6 percent for 2023–2024.

Due to predictions of a regular monsoon, decreasing inflationary pressures, and continued momentum in the manufacturing and services sectors, the RBI kept the GDP growth estimate for the 2024–25 fiscal year at 7%. The Reserve Bank of India said in its April monetary policy statement that real GDP growth is expected to be 7% in 2024–25, with Q1 at 7.1 percent, Q2 at 6.9 percent, Q3 at 7%, and Q4 at 7%.

According to estimates from several analysts, PTI stated that India's GDP is expected to have expanded by 6.1% to 6.7% in the fourth quarter of the financial year 2023–24. This represents a decrease from the growth rate of above 8% recorded in the preceding three quarters.

On May 31, the government is scheduled to announce the GDP data for the fourth quarter of 2024 (January–March) as well as the preliminary projections for the 2023–2024 fiscal year.

The December quarter had the most growth in India's GDP in six quarters, at 8.4%. India's economy last expanded at a higher rate in the first quarter of 2022–2023, when it recorded growth of 13.1%, which was then revised down to 12.8%.

Rate reduction

The central bank may consider reducing interest rates after the October 2024 MPC meeting, according to the experts.

"Strong domestic growth conditions, with FY24 GDP likely to be closer to 8 percent, provide policy space to remain on pause." According to Sengupta, the RBI rate-cut cycle is anticipated to begin at the latest in October.

"The RBI is likely to join its regional peers in staying on hold this year, with a limited near-term must transform to a dovish gear," said Rao of DBS.