India’s Central Bank Expected to Maintain Rates Until at Least July

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Economists surveyed by Reuters anticipate that the Reserve Bank of India (RBI) will keep interest rates unchanged until at least July, citing robust growth and persistent inflation. India’s economy recorded a remarkable 8.4% growth in the fourth quarter of 2023, outpacing other major economies.

With inflation hovering near the upper limit of the central bank’s 2%-6% target range, there are no immediate signs of a rate cut. All 56 economists polled between March 15 and 22 expect the RBI to maintain the repo rate at 6.50% following its April 3-5 meeting. However, opinions differ on the timing of the first rate cut, with forecasts ranging from the next quarter to later in the year.

The median projection suggests a rate of 6.25% by the end of September and 6.00% by year-end. Factors such as headline inflation remaining above 5% and robust fourth-quarter GDP figures are expected to make Monetary Policy Committee (MPC) members cautious about premature rate cuts, according to Alexandra Hermann, a lead economist at Oxford Economics. Despite a year-long decline in core inflation, MPC members are likely to prioritize a clearer downward trajectory in headline numbers toward the 4% mid-point target.

The poll indicates that inflation is projected to decline to 4.00% in the third quarter before increasing again. Growth forecasts suggest a slowdown to 6.6% next fiscal year from the current 7.6%, although still outperforming other major economies.