With Consumer Price Index (CPI)-based inflation back at over 5 per cent to touch 5.1 per cent in June 2024, Barclays Research expects Reserve Bank of India (RBI) to stay hawkish and go in for first interest rate cut in December only.
“Amid increased comfort over growth, we see a window for rate cuts opening only in December 2024. Our base case remains a cut in December, with a risk of no cuts this year,” Shreya Sodhani, Regional Economist, Barclays said in a latest research note post the June CPI release by Government.
Higher than expected seasonal increase in vegetables prices pulled CPI Inflation to 5.08 per cent in June 2024.
For entire 2024-25, Barclays Research expects inflation to average 4.3 per cent (RBI: 4.5 per cent).
Barclays Research sees CPI inflation for July 2024 coming in at 3 per cent year-on-year, driven lower in part by a high base.
Inflation and cut rates
“Food prices are likely to increase into next month (July), though we expect the momentum in vegetables to ease. That said, July is likely to see a larger sequential increase in core inflation than seen in recent times with a seasonal pick-up in housing prices combined with the implementation of higher telecom prices from July2,” Sodhani added.
“Annual inflation is likely to be low through Q2 FY25, driven by base effects. We expect the MPC members to look through this and monitor monsoons and the corresponding trajectory of food inflation. We expect inflation to average 4.3 per cent in FY24-25 (RBI: 4.5 per cent)”.
RBI Governor had at the last Monetary Policy Committee (MPC) meeting in June raised India’s GDP growth projection for current fiscal from 7 per cent to 7.2 per cent.
Last week, the RBI Governor Shaktikanta Das continued to sound hawkish, suggesting that it is too soon to cut rates and inflation is moving towards the RBI’s 4 per cent target very slowly. “Our view is supported by Governor Das interview,” she said.
MPC meetings
India’s Central Bank has kept policy rates unchanged for eight consecutive MPC meetings, with RBI Governor Shaktikanta Das signalling his reluctance to ease rates unless inflation falls to its target of 4 per cent.
There are three upcoming MPC meetings between now and December—August 6-8, 2024; October 7-9, 2024 and December 4-6, 2024.