RBI may cut rates in early 2024 as inflation eases: S&P Global Ratings
Credit ratings agency Standard & Poor’s said the RBI will likely start lowering its repurchase policy rate in early 2024 once headline inflation eases towards the 4 percent target.
“In India, under the assumption of a normal monsoon, we expect core consumer inflation to fall to 5 percent in fiscal 2024 from 6.7 percent,” the ratings agency said in a June 25 report released to the media on Monday. “Soft crude oil prices and demand easing will lower fuel and core inflation, respectively.”
Annual retail inflation eased to a more than two-year low of 4.25 percent in May as cost pressures on food eased. Inflation in May was within the RBI’s target range of 2-6 per cent for the third consecutive month.
India’s Monetary Policy Committee has raised the repurchase rate by 250 basis points since May 2022 but kept it at 6.50 percent in April and June this year. The commission is widely expected to pause increases for the rest of 2023.
Standard & Poor’s said that inflation and interest rate hike cycles in India have peaked. It expects inflation to average 5 percent this fiscal year, below the Reserve Bank of India’s forecast of 5.1 percent, and to post 6 percent growth in gross domestic product.
S&P said that as inflation and external deficits receded in Asia, pressure eased on central banks to raise interest rates. She added that even with increasing calls for lower interest rates, there is not much room for lower rates anytime soon in light of the high interest rates in the United States.
S&P expects the RBI to cut interest rates by 25 basis points this fiscal year, bringing the repurchase rate to 6.25 percent by the end of March. It added that the Reserve Bank of India may then cut the rate by 100 basis points during 2024-2.