RBI Policy Rate: Markets eye monetary policy for rate cut cues even as repo rate likely to remain unchanged

RBI MPC LIVE: Governor Shaktikanta Das will disclose the meeting's outcome at 10 AM today

The Reserve Bank of India (RBI) is widely expected to keep the repo rate steady at 6.5 percent for the sixth consecutive time during its February monetary policy committee (MPC) meeting on February 8, according to analyst consensus. Although markets have already factored in this expectation, experts suggest that any hints of a rate cut in near future from Governor Shaktikanta Das could ignite a fresh rally.

“Markets will keenly watch the RBI Governor's intent to cut rates. Investors can expect renewed rally if the central bank steered towards monetary policy easing, otherwise it may remain as it is,” said Nishit Master, Portfolio Manager at Axis Securities PMS.

All eyes will be on the RBI MPC LIVE announcements today

According to a Moneycontrol poll, the RBI is likely to leave the key interest rates unchanged on February 8. An overwhelming majority of the economists polled also said that the central bank would maintain the policy stance of withdrawal from accommodation in the meeting, thus largely continuing the policy approach taken in recent months.

ALSO READ: Moneycontrol Poll | RBI MPC to leave rate unchanged 

Interest rate cut hope could spark banking stocks rally…

The RBI has kept the repo rate unchanged since February 2023 as inflation largely remained in-line within the 2-6 percent target range. It remains to be seen what the RBI MPC decides to do following the interim Budget.

Since banking stocks’ underperformance has been keeping markets range bound for the last few sessions, any rate cut indication by the RBI could move private bank shares such as ICICI Bank or Axis Bank, which would thereby bolster overall market sentiment, said Ajit Mishra, Senior Vice-President of Technical Research at Religare Broking.

“The sustenance of Bank Nifty above 47,000 will change the trend to positive bias. For Nifty, we see 22,150 to act as a strong hurdle going ahead, with a support placed in the range of 21,600-21,700,” he added.

… But is a rate cut on the horizon any time soon?

On the rate cut path, analysts at Nuvama Institutional Equities expect no discussion or guidance just yet. “In our view, rate cuts are still distant," they wrote in a RBI preview note, citing elevated headline inflation.

Headline inflation touched a 4-month peak of 5.7 percent in December due to higher food prices and unfavourable base. However, core inflation dropped below 4 percent-mark in December, first since the onset of Covid-19 pandemic.

Going ahead, analysts expect headline inflation to moderate in the coming months, aided by a favourable base effect lasting until July 2024. "Given the prevailing circumstances, the RBI will continue to support economic growth while maintaining a cautious stance on inflation," said analysts at CareEdge Ratings. They expect the MPC to keep the current policy rates unchanged and consider cutting rates from Q2FY25 onwards.

Additionally, the RBI may announce liquidity measures to improve conditions in the money market and raise growth projections for FY24 closer to 7.3 percent, added CareEdge Ratings analysts.

US Fed tempers rate cut hopes, 2% inflation goal eyed

The US Federal Reserve Chair Jerome Powell said in an interview that the central bank will proceed carefully with interest rate cuts this year. They are likely to move at a considerably slower pace than the market expects.

In its January meeting, the FOMC maintained the benchmark borrowing rate between 5.25 percent-5.5 percent. They stated that it would refrain from cutting rates until it gains greater confidence in inflation moving towards the 2 percent target.

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