Economists, including those at Barclays Bank Plc and Nomura Holdings Inc., see the central bank staying on a long pause as high interest rates weigh on demand in the economy.
“The policy pause will give way to a policy pivot towards rate cuts, starting this October,” Nomura economists Aurodeep Nandi and Sonal Varma wrote in a note. “We expect a sharper cyclical slowdown due to the impact of the global slowdown, combined with the lagged impact of domestic policy tightening,” they said, projecting rate cuts of 75 basis points by March.
The six-member monetary policy committee of the Reserve Bank of India voted unanimously to keep the benchmark policy rate unchanged at 6.50%, but Governor Shaktikanta Das cautioned it was not yet a pivot toward cuts as the fight against inflation was “far from over.”
While retail inflation fell within its 2%-6% target band for the first time in three months in March, uncertain weather, which could damage crops and fuel prices, is keeping rate setters on the edge.
“It might be difficult for them to opt for more rate hikes if the gradual disinflation process continues as some growth risks could also arise in the latter part of the year,” Citigroup Inc. economists Samiran Chakraborty and Baqar Murtaza Zaidi wrote in a note. Any rate hike now would be “a surprise for the markets,” they added.