RBI unlikely to cut rates until mid-2024 amid inflation jump, traders say

economictimes.indiatimes.com:

Surging food prices accelerated India's annual retail inflation rate in June to 4.81%, above the polled estimate of 4.58%, snapping four months of easing. «Rate cut bets are getting re-priced as markets are now expecting inflation to overshoot above 6% in July and upward pressure in the coming quarter,» said Madhavi Arora, lead economist at financial services firm Emkay Global. «The bet for the first cut has been shifted by at least one quarter to June 2024,» she added.

Three senior traders at private and foreign banks agreed. India's 1-year overnight index swap (OIS) rate currently stands at 6.75%, above its 2023 low of 6.49% reached in May when market was expecting the RBI to cut rates in February or April of 2024. «There is absolutely no rate cut in the OIS 1-year price anymore,» a senior trader at a foreign bank said, adding that «no one would have bet on a rate cut in India through 2024,» if rate cuts in the United States were not a consideration.

Inflation has hit the lowest and is likely to continue to hover around current levels or edge slightly higher from here on, the trader who did not wish to be named as he is not authorised to speak to the media added. Vegetable prices, on a consumer price index weighted basis, have risen 25% month-on-month in July, said Abhishek Upadhyay, senior economist at ICICI Securities Primary Dealership. «This could push July CPI inflation to somewhere close to 6.3-6.4%,» he said.