RBI policy hawkish, expect a rate cut only in Apr-Jun 2024: Analysts

Shaktikanta Das

The Reserve Bank’s status quo in policy rates and the accompanying commentary was termed as a "hawkish" pause by analysts on October 6.

Many professional watchers said the fourth consecutive pause pushes their expectations of a rate cut further, with some saying it can happen only in the April-June quarter of 2024. After announcing the rate panel decision, Governor Shaktikanta Das said the RBI will be "actively disinflationary" and "emphatically reiterated". The panel also stuck to the stance of "withdrawal of accommodation", and Das later hinted that a relook at it is not possible till inflation cools down.

"We foresee a rate cut only in the first quarter of next fiscal, assuming normalising inflation and slowing growth," ratings agency Crisil said, adding uneven distribution of rainfall during the monsoon season, rising crude oil prices and tight global food supplies as upside risks to inflation this fiscal. Foreign brokerage Goldman Sachs termed it as a "hawkish hold" from the RBI, while its peer from Japan, Nomura, also said that the RBI has hit the hawkish button again.

Nomura said the combination of hawkish forward guidance and the threat of an OMO (open market operation) sale of government securities to manage liquidity sent a "hawkish signal overall". It expects a cut between February and April and added that 2024 can see a 1 percentage point cut in rates overall. HDFC Bank’s chief economist Abheek Barua said the pause was as per expectations, and added that RBI has made public its preference for tighter liquidity conditions going forward driven both by inflation risks and financial stability concerns as liquidity tightens globally.

In a note, foreign brokerage Morgan Stanley said liquidity will be a focus in the near term with RBI voicing in support of nimbleness. Deutsche Bank also said that it expects rate cuts to happen from April 2024 onwards if the inflation trajectory plays as per its expectations.