Economists expect RBI to start lowering policy rates from October

On June 7, MPC decided to keep the repo rate unchanged at 6.5 percent with a majority of 4: 2.

After the Reserve Bank of India (RBI) decided to keep the repo rate unchanged at 6.5 percent, economists think that the central bank will look at lowering the rates from October 2024.

“Strong growth conditions have provided RBI policy the space to remain on pause. Heatwave conditions have added to the near-term upside risk to food inflation which is expected to subside with the start of the monsoon season. Core inflation remains at historical lows, which indicates that the risk of overheating is less. Another indicator which also supports this is low current account deficit. Against this backdrop, the earliest RBI can cut interest rates is in October,” said Gaura Sen Gupta, chief economist at IDFC First Bank.

His counterpart at Kotak Mahindra Bank, Upasna Bhardwaj, said that the RBI’s status quo on rates and stance were in line with market expectations, but the split in voting patterns clearly shows the increasing probability towards a pivot in the policies ahead. "We see room for stance change in the August policy with a plausible easing from the October meeting."

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Dharmakirti Joshi, chief economist at CRISIL, pointed out that the RBI has kept its inflation forecast for this fiscal unchanged at 4.5 percent, but remains more optimistic of growth, and has revised the GDP growth up by 20 basis points to 7.2 percent. “We now see the RBI cutting rates starting October and have lowered our expectation to two rate cuts against three projected earlier,” Joshi said.

On June 7, the Monetary Policy Committee (MPC) of the RBI decided to keep the repo rate unchanged at 6.5 percent with a majority of 4:2. In his second bi-monthly monetary policy for the current financial year, RBI Governor Shaktikanta Das said that the central bank has decided to maintain withdrawal of accommodation stance.

"The pattern of world crisis continues, but India is seeing positive growth. But we need to stay vigilant against new challenges," Das said. The RBI sees bright prospects of sustained high growth. RBI will gear up to be future ready to enhance India's global positioning, he added.