RBI MPC meet: Expect repo rate cut only in Q3 FY25, says SBI

The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) will start its two-day policy meeting for the financial year (25) 2024-25 on April 3, 2024. It'll be the first policy meeting of the RBI in the financial year 2024-25.

According to estimates, the RBI may continue its "status quo" policy about key repo rates and focus on a "withdrawal of accommodation" stance.

Strong evidence of emerging economy central bank rate actions is predicated by advanced economy central bank rate actions. "We expect deposits and credit may grow 14.5-15% and 16.0-16.5% respectively in FY25...first RBI cut in Q3 FY25...such rate cut cycle likely to be shallow," SBI Research says in its prelude to the MPC meeting.

All major emerging economies rates such as Indonesia, India, Malaysia, Saudi Arabia, and Thailand are being predicted by past movements of U.S. rates or U.K. rates, signifying the granger causality relationship, the report highlights, adding that India is an "exception".

With fuel prices being moderate, inflation is currently being driven by food price dynamics, it says. “CPI inflation is mostly driven by food inflation. Looking ahead, evolving food prices will determine domestic inflation. CPI inflation is expected to remain slightly above 5.0% in the remaining month of FY24. Core CPI declined to 3.37% -- a 52-month low,” writes Soumya Kanti Ghosh, chief economist, SBI Research.

The report mentions that inflation is expected to decline till July 2024 but increase, thereafter, to reach a peak of 5.4% in September 2024, followed by a deceleration. “For the whole FY25, CPI inflation is likely to average to 4.5% (FY24: 5.4%).”

In terms of fund inflow, India has beaten the rest of the Asian markets by attracting the highest foreign funds flow in March 2023, defying geopolitical crises and concerns that the higher interest rate regime will continue for some more time.

The meetings schedule of the RBI MPC for 2024-25 says the first meeting will be held on April 3-5, 2024; second on June 5-7, 2024; third on August 6-8, 2024; fourth on October 7-9, 2024; fifth on December 4-6, 2024, and sixth on February 5-7, 2025.

The central bank had kept the repo rate unchanged at 6.5% for the sixth time in a row on February 8, 2024. The RBI-led MPC also decided to keep the marginal standing facility and bank rates unchanged at 6.75%, while the standing deposit facility remains at 6.25%. The RBI had announced the economic GDP growth estimates for FY25 to 7%. On the inflation front, the MPC decided to keep the inflation estimate "unchanged" for FY24 at 5.4%.

SBI Research, in its report, also says the mercurial rise of gold has entered a new, somewhat uncharted zone in terms of price as well as demand. “The central banks seem to fan the demand, their appetite for this precious metal exceeding net demand over 100 tonnes for two years in a row.”

Notably, the World Gold Council's latest data shows the cumulative holding of central banks in yellow metal reaching a record 78,000 tonnes as of the end of December 2023 as they bought 1,037 tonnes of gold in 2023.