Economists welcome RBI’s decision to extend repo rate pause, expect cut in Q4

The RBI’s Monetary Policy Committee (MPC) unanimously decided to keep its key lending rate — repo rate — unchanged at 6.50 per cent. The MPC also decided by a majority of five out of six members to remain focused on ‘withdrawal of accommodation’ to ensure that inflation progressively aligns with the target while supporting growth.

“The MPC expectedly continued with the rate pause as the inflation prints have come well within the tolerance band of 2 to 6% and growth concerns persist. The stance has been kept as withdrawal of accommodation as that is the signalling the RBI wants for keeping the inflationary expectations anchored,” said Ranen Banerjee, Partner at PwC India’s Economic Advisory Services.

He added, “The FY24 growth rate projection of 6.5% is more on the optimistic spectrum band as the number of downside risks listed are quite a many. The projected growth rate for Q1 at 8% in FY24 is likely to get tested despite the holding up of demand in the first two months of the year.”

RBI Governor Shaktikanta Das, while announcing the bi-monthly policy, retained the central bank’s stance of GDP growth projection for FY24 at 6.5 per cent. Das said that GDP growth in the first fiscal of FY2024 is expected at 8 per cent, followed by 6.5 per cent in Q2, 6 per cent in Q3, and 5.7 per cent in Q4.

The RBI governor said the headline inflation is above the target of 4 per cent and expected to remain so during the rest of the year. However, the central bank lowered retail inflation projection for FY24 to 5.1 per cent, from 5.2 per cent.

CRISIL’s chief economist Dharmakirti Joshi said, “Growth in gross domestic product has been resilient so far, with a sharp uptick to 6.1% in the last quarter of fiscal 2023. Private consumption demand, however, was weaker than other segments. This is likely to moderate demand conditions in the current fiscal given that bank lending rates are now higher than pre-pandemic five-year average.”

“A sharper slowdown in advanced economies will also weigh on growth, particularly in the second half of the year.”

Joshi added, “The central bank remains vigilant of global volatility. Even as central banks in major advanced economies have reduced the pace of rate hikes, inflation rules above their target and faces upside risks from tight labour market conditions.” He further said, “We expect RBI to maintain status quo on rates this fiscal and initiate cuts in the January-March quarter of 2024.”

Commenting on the policy, Bank Bazaar CEO Adhil Shetty said, “Today’s move to keep the repo rate unchanged has come as a relief to borrowers who are reeling under the pressure of rate hikes which have been implemented so far.”

“RBI’s decision to keep the rates unchanged indicates that interest rates may be stabilising. If inflation remains under the permitted limits, we could see rates dropping before the end of 2023. If you are a borrower with a repo-linked loan, your rate should automatically reset after any repo rate change within a quarter. The lowest rates being offered in the home loan market today range from 8.40 to 8.50 per cent, for eligible borrowers,” Shety added.