RBI MPC meet: Will the central bank stay with interest rate pause?

"With the GDP data for Q2 of FY2024 appreciably higher than the MPC's last forecast, and continuing concerns on various aspects of food inflation, we expect the MPC to pause in its December 2023 review, amidst a fairly hawkish tone of the policy document,” Nayar said.

Sunil Koul, APAC Equity Strategist at Goldman Sachs expects the central bank to stay on hold on rates till the fourth quarter of next year (Q4CY24). "We think that the RBI will stay on hold pretty much for until Q4 of next year, and even when the rate cutting starts, it would be much more shallow cycle for RBI too but that is also contingent on our global view as I said."

Further, the Goldman Sachs strategist said the underlying US economy is strong and the Federal Reserve therefore doesn't need to cut rates anytime soon. "If we do see growth data worsening and then the Fed could have early rate cuts in terms of more insurance cuts, but we don't see the need for that at this point in time."

Rahul Bajoria, Managing Director and Head of EM Asia (ex-China), Economics, Barclays expects the MPC to maintain the monetary policy stance towards a withdrawal of accommodation despite deficit liquidity conditions. "Additionally, the MPC is likely to flag a moderation in the pace of monetary transmission, as spreads of lending rates over the repo rate have narrowed in the past few months,” he said.

In its report, SBI said it expects the RBI to continue the pause stance in upcoming policy. "Domestically, we believe at 6.50%, we are in for a prolonged pause, no rate reversal cycle till June ’24 stance,” SBI said in the report.

“We believe the stance should continue to be withdrawal of accommodation as inflation is unlikely to tread below 5 per cent in rest of FY24; as amidst the structural change in liquidity is making its forecasting difficult, it should be looked at with a completely different prism,” SBI said.

Bank of Baroda Chief Economist Madan Sabnavis said that there will be no change in the RBI policy. "The reason is that the inflation will start inching up because food inflation is going to increase. We have seen onion and tomato prices going up again. So, there is no case for even thinking of lowering the repo rate. At the same time, core inflation is around 4%, and therefore, there is no reason for the RBI to increase the rate."

Anubhuti Sahaya of Standard Chartered said the RBI will opt for a status quo in repo rate and said that the central bank's guidance on liquidity should be watched.

“Vigil on inflation is likely to remain high amidst likely increase in inflation towards 6 percent and a still strong growth momentum. Any guidance on liquidity is likely to be watched out, though with high inflation, easier liquidity conditions look unlikely,” Sahay said.

Ramani Sastri, Chairman and MD at Sterling Developers said a further reduction in interest rates would be preferred to bolster overall market confidence. "We are also expecting significant growth in the near future, building on the success of this year and the continued strong demand in the real estate sector driven primarily by burgeoning aspirations."

The country's gross domestic product (GDP) growth for the July-September quarter of this financial year is beyond expectations, as per economists.

India’s July-September 2023 GDP growth came in at 7.6%, as against 6.2% in the July to September period of last year. Economists said that with this GDP growth, the central bank would opt for a hawkish stance in its coming MPC meeting.

The central bank has left the repo unchanged in its past four bi-monthly monetary policies. The RBI increased the repo rate by 250 basis points to 6.5% between May 2022 and February 2023.

It had last increased the repo rate to 6.5% in February, ending the interest rate hiking spree which began in May last year due to Russia's invasion of Ukraine and subsequent disruptions in the global supply chain resulting in high inflation in the country.