POLL-India's central bank likely to hold rates steady until at least July

Credit: REUTERS/Francis Mascarenhas

By Milounee Purohit

BENGALURU, March 26 (Reuters) - The Reserve Bank of India (RBI) will keep interest rates unchanged until at least July, a bit longer than the U.S. central bank is expected to do so, on strong growth and still-elevated inflation, according to a firm majority of economists polled by Reuters.

India's economy grew a stellar 8.4% in the fourth quarter of 2023, the fastest among major economies. Inflation, which is still close to the upper band of the central bank's 2%-6% target, does not hint at an imminent rate cut.

All 56 economists in the March 15-22 Reuters poll expected the RBI to hold the repo rate at 6.50% INREPO=ECI at the conclusion of its April 3-5 meeting.

They were, however, divided on when the first cut would come, with nine of 52 saying next quarter, 24 picking the third quarter, 17 saying the fourth quarter and the rest expecting it at a later time. Median forecasts put the rate at 6.25% by the end of September and 6.00% at the end of this year.

"The combination of headline inflation remaining above 5% and the strong Q4 GDP figures will likely leave Monetary Policy Committee (MPC) members cautious about cutting rates too soon," said Alexandra Hermann, a lead economist at Oxford Economics.

"While the year-long downward trend in core inflation will be seen as encouraging, MPC members will likely not deem this sufficient and rather err on the side of caution, waiting until the headline numbers are on a clearer downward path towards the 4% mid-point target."

Inflation, at 5.09% in February, will decline to 4.00% in the third quarter before rising, poll medians showed. Price rises were expected to average 5.40% and 4.60%, respectively, in the current fiscal year and the next.

Although growth was forecast to slow to 6.6% next fiscal year from 7.6% in the current fiscal year - a significant upgrade from the 7.0% predicted for this fiscal year just a month ago - it would still be the fastest among major economies.

"While the Fed has already indicated policy rates are likely to be reduced in the coming months, the growth and inflation dynamics in India suggests the RBI may just keep rates elevated for longer," wrote Aditi Gupta, an economist at Bank of Baroda.

"In any case, the Fed is likely to cut interest rates much more than the RBI, which will ensure the interest rate differential settles somewhere close to the historical trend."

(For other stories from the Reuters global economic poll:

Reuters poll - Reserve Bank of India policy rate forecasts https://tmsnrt.rs/4cu7JzS

(Reporting by Milounee Purohit; Polling by Devayani Sathyan, Anant Chandak and Veronica Khongwir; Editing by Jonathan Cable and Paul Simao)

((Milounee.Purohit@thomsonreuters.com;))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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