RBI policy meet starts on April 3: Status quo on rates, change in stance possible? Here’s what top experts say

RBI policy meet: The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) is set to convene for its initial meeting of the new financial year to deliberate on policy rates and stance on April 3rd. The decision resulting from this meeting is scheduled to be announced on April 5th.

There is a prevailing anticipation that the central bank will opt for a status quo on policy rates, given that Consumer Price Index-based inflation, or retail inflation, continues to exceed the RBI's 4 per cent target, while the country's macroeconomic indicators are showing signs of robust growth.

Also Read: RBI Monetary Policy Committee Meeting this week: Date, time and what to expect

According to a poll conducted by news agency Reuters, RBI may keep interest rates unchanged until at least July.

All 56 economists who took part in the March 15-22 Reuters poll expected the RBI to hold the repo rate at 6.50 per cent at the conclusion of its upcoming April 3-5 meeting.

Also Read: RBI likely to keep interest rates unchanged in upcoming April, June policy meetings: Report

Mint gathered insights from leading experts to evaluate their expectations regarding the RBI MPC's upcoming decision. Will the central bank maintain a status quo on rates but tweak the stance? Here's what they said:

Sujan Hajra, Chief Economist, Anand Rathi Shares & Stock Brokers

The Monetary Policy Committee (MPC) faces a complex landscape, yet its forthcoming decision on the repo rate is anticipated to be straightforward. 

Given the backdrop of strong growth and inflation persistently exceeding the MPC's target, the likelihood of a rate cut at this juncture is minimal. 

Conversely, the extensive monetary tightening previously enacted, coupled with a softening inflation trajectory and notable global economic uncertainties, effectively dismiss the prospect of a rate hike.

Also Read: RBI releases MPC schedule for FY25, first meeting to be held from April 3-5; check details

The MPC's stance on liquidity presents a more nuanced challenge. 

Although growth remains robust, it shows signs of deceleration, and the liquidity situation has tightened. 

This scenario suggests a strategic pivot from a liquidity-tightening policy to a neutral stance might be warranted. 

However, considering India's rapid growth relative to other major economies, alongside inflation rates that not only exceed MPC's targets but also harbour potential escalatory factors, a premature shift to a neutral liquidity stance could inadvertently fuel inflation pressures. 

Consequently, it is plausible that a consensus among MPC members to maintain the current stance on liquidity will prevail, advocating for the status quo.

Future guidance from the MPC and the Reserve Bank of India (RBI) regarding growth and inflation is expected to remain consistent, underscoring a balanced approach to navigating the prevailing economic conditions. 

In summary, the anticipated outcomes of the MPC's deliberations are projected to align with market expectations, thereby mitigating any significant impacts on the financial markets resulting from this policy decision.

Also Read: Fed need not be in hurry to cut rates, inflation data within expectations: Jerome Powell

Deepak Jasani, Head of Retail Research at HDFC securities

Although the headline CPI inflation has cooled from 5.7 per cent in Dec’23 to 5.1 per cent in Feb’24, food inflation continues to remain high and stood at 8.7 per cent in Feb’24. 

In the last meeting, the Governor emphasised that the target of 4 per cent CPI (Consumer Price Index) is yet to be reached and RBI would stay the course till then. 

Therefore, we believe that the RBI MPC is likely to keep the policy repo rate unchanged and retain the monetary policy stance of ‘withdrawal of accommodation’ at its meet on April 03-05, 2024. 

As this outcome will be in line with street expectations, we do not foresee any major impact on domestic equity markets.

Also Read: India GDP expected to grow 8% and above in March quarter and FY24, says FM Sitharaman

Kapil Gupta, Executive Director, Nuvama Institutional Equities

In the forthcoming monetary policy review, the MPC is expected to keep the interest rate unchanged but may moderate its policy stance from “withdrawal of accommodation” to “neutral”. 

This could be given consistently softer readings on the core inflation front, which is now below 3.5 per cent. 

That said, MPC is in no rush to reverse course on policy rates as economic growth momentum remains solid as seen in the incoming real GDP data. In all policy is unlikely to deliver a surprise vis-à-vis market expectations. 

Domestic liquidity conditions have also eased versus last time and we do not foresee any material intervention on the liquidity front either.

Hitesh Jain, Strategist - YES Securities India

RBI is seen sitting tight on Interest rates at the April policy meeting, synchronizing with the policy action of the major central banks. 

However, we fancy a possibility of a change in stance from “withdrawal of liquidity” to “neutral” given that core inflation has been consistently falling and well below 4 per cent. 

Recent LAF operations suggest that RBI is becoming comfortable with a neutral liquidity position, wherein the central bank has injected liquidity through various VRR auctions and in the process has mitigated the banking liquidity deficit emanating from the Advance Tax and GST outflows during the end of the FY2024. 

A change in stance during April could be a precursor to a probable change in policy rates during June/August, in tandem with the policy communication from major central banks like the Fed, BoE and ECB.

Vikas Garg, Head of Fixed Income, Invesco Mutual Fund

The global backdrop has turned more benign since the last MPC in February 2024. 

Many key central banks like FOMC, ECB and others have recently reiterated the high likelihood of rate cuts beginning over the next few months. 

Domestic core inflation has fallen to 3.3 per cent, a four-year low, with an expected relief of 15-20 bps in headline inflation as the Government has cut down on the prices of LPG, diesel and petrol and a healthy external balance, with the current account deficit for FY24 looking well below 1 per cent and record high forex reserve of $642 billion. 

However, at the same time, crude prices have escalated again, and food inflation remains elevated. 

Against this backdrop and as domestic GDP remains healthy, we expect the MPC to remain balanced on the inflation trajectory and maintain a status quo on policy rates as well as policy stance with a 5-1 vote.

Even as the domestic rate cut cycle is some time away, current domestic market sentiment is already positive, with favourable fiscal demand–supply dynamics on the back of rapid fiscal consolidation, inclusion in the JP Morgan global debt index, and a very light G-Sec borrowing calendar in 1HFY25. 

On the MPC front, any more members dissenting on the status quo of policy rate or stance will send a dovish signal and add towards the positive market sentiment. 

In this scenario, we can see a market rally across the yield curve, with the 10-year G-Sec dropping below 7 per cent yield and moving further down on healthy investor demand.

Vijay Singh Gour, Senior Analyst, Choice Broking

RBI is expected to keep the repo rate unchanged in its first monetary policy meeting of FY25 as the CPI is still far from the 4 per cent target level. 

However, core inflation is within range but RBI is more concerned about food inflation. 

In addition, economic growth exceeded market expectations in Q2 and Q3 of FY24 and is expected to continue to be strong in Q4FY24 and FY25. 

We can expect a rate cut in FY25 as the RBI gets comfortable with CPI. The outcome of the MPC is not likely to have any meaningful impact on markets, as it has already been factored in.

Disclaimer: The views and recommendations above are those of individual analysts, experts and broking companies, not of Mint. We advise investors to check with certified experts before making any investment decisions.