According to a research by Morgan Stanley, the Reserve Bank of India (RBI) is most likely to maintain the repo rate for the time being because inflation figures appear to be under control and any cuts to the benchmark interest rate are only anticipated in the first half of 2024.
The Reserve Bank of India made the decision to maintain the key benchmark interest rate, the repo rate, at 6.5 percent during its first monetary policy review meeting in 2023–2024 in order to monitor the effects of the recent tightening of policy rates.
The next meeting of the RBI’s monetary policy committee has been scheduled for June 6–8, 2023.
In an effort to fight inflation, the RBI has thus far increased the repo rate—the interest rate at which it loans to banks—by a total of 250 basis points since May 2022.
“While in our base case we expect a shallow rate cut cycle to start from 1Q24, we see risks of the same starting earlier based on an improving inflation outlook,” in a report co-authored by Upasana Chachra and Bani Gambhir titled “India Economics – Macro Indicators Chartbook: Growth Sustains Momentum; Macro stability in Check,” a global investment banking company made this statement.
According to the research, Morgan Stanley anticipates that rates will remain unchanged in 2023 since it believes that retail inflation will decisively stay below the 6% threshold.
It is predicted that India’s headline consumer price index-based (CPI) inflation, also known as retail inflation, will further ease to 5.2 percent in the fourth quarter of the 2023–24 fiscal year from its peak of 7.8 percent in April 2022.
“The headline CPI print for March was in line with expectations. We expect inflation to decelerate more decisively in the quarter ending June, to below 5 per cent, supported by favourable base effect and moderating commodity prices,” the report stated.
An tool of monetary policy that normally works to reduce demand in the economy and, in turn, lower inflation is raising interest rates.