RBI MPC Meeting: Patience is the buzzword; rate cut unlikely before August, says Yes Bank's Indranil Pan
RBI reports that for Q1FY25, services sector companies and infrastructure firms expect higher input costs. While services sector firms expect selling prices to rise, the same is not expected by the infrastructure firms. In PMI surveys, manufacturing firms indicated a rise in input prices, but do not expect output prices to rise.
At the press conference, the RBI governor clarified that India’s monetary policy reaction function crucially depends on domestic conditions and the US Fed may not have much of an impact. He also highlighted a couple of examples whereby India had moved ahead of the US Fed. However, this cycle may be a bit different as India-US interest differential is at historic lows and we think that the RBI will only move after the Fed.
Markets had a strong expectation for the Fed with its first cut in June 2024. However, data has been resilient, leading to the recent Fed talk tilting towards being hawkish. So, patience is the buzzword now.
Central bankers around the world are exhibiting this and so would the RBI. The RBI has solemnized the 4 per cent inflation target and would not be satisfied unless this is achieved on a sustainable basis. For context, Headline CPI inflation is expected to come down to 3.8 per cent in Q2FY25 but is projected to go higher again.
Timing of the rate cut is therefore slightly tricky to determine but is unlikely to be anytime before the August policy and more tilted towards the October policy. But what we can confidently say is that whenever the cutting cycle starts, it is unlikely to be deep. Milestone Alert!
Livemint tops charts as the fastest growing news website in the world
