US Fed, RBI gear up for their last policy meet of the year; will a pause continue? When to expect rate cuts? | Mint
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Business News/ Economy / US Fed, RBI gear up for their last policy meet of the year; will a pause continue? When to expect rate cuts?
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US Fed, RBI gear up for their last policy meet of the year; will a pause continue? When to expect rate cuts?

Market participants are turning their attention to upcoming policy meetings of central banks, including the Reserve Bank of India (RBI) and the US Federal Reserve.

The market hopes the US Fed and RBI will not raise interest rates from current levels. (AP Photo/Seth Wenig) (AP)Premium
The market hopes the US Fed and RBI will not raise interest rates from current levels. (AP Photo/Seth Wenig) (AP)

Following the release of state election results, market participants are now turning their attention to the upcoming policy meetings of central banks. The Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) is scheduled to commence its three-day policy meeting on December 6, with the outcome due on December 8. Similarly, the US Federal Reserve is set to announce its policy outcome on December 13.

Both the US Fed and the RBI are expected to maintain interest rates at the current level since inflation is easing and growth remains resilient.

“The focus of the policy will remain on ensuring the disinflation process and aligning inflation with the 4 per cent target. Headline (consumer price index) inflation is expected to remain above 5 per cent till Q1FY25, which is above the 4 per cent target," Mint earlier quoted Gaura Sengupta, India economist at IDFC First Bank, saying so.

Both the central banks want to see a sustainable drop in inflation. While the RBI's target for inflation is 4 per cent, the US Fed wants it at 2 per cent.

Most economists expect the RBI MPC to cut rates only in the second half of the next financial year, depending on the stance taken by the US Federal Reserve.

Also Read: India Q2 GDP: Indian economy poised for strong growth in FY24? Here's what top economists say

Experts underscore that the recent statements from Federal Reserve officials indicate that the US central bank is currently not considering raising interest rates. Despite this stance, the ongoing battle against inflation remains the Fed's priority, and it would be premature to anticipate a rate cut at this juncture.

Also Read: RBI to maintain status quo on policy, raise GDP forecast: Mint poll

V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services pointed out that the RBI MPC will be meeting this week under very favourable conditions. CPI inflation has come down from 5.02 per cent in September to 4.87 per cent in October. Q2 GDP growth at 7.6 per cent has surprised on the upside.

Vijayakumar believes RBI is likely to revise the FY24 GDP growth to 6.7 per cent from 6.5 per cent earlier.

Moreover, as the growth momentum in the economy is strong, a monetary stimulus through a rate cut is not needed now. So, the ideal response of the MPC would be a pause both in rates and stance, Vijayakumar said.

Also Read: RBI to remain cautious on inflation, keep the repo rate unchanged at 6.5% in December, says Barclays

The US Fed, too, may maintain a pause.

"The Fed has signalled the end of the rate hiking cycle and will pause in the coming policy meet. A rate cut by the Fed is likely by mid-2024 and that is when the MPC also can go for a cut, assuming no major changes in the macro scenario," said Vijayakumar.

Deepak Jasani, Head of Retail Research at HDFC Securities also believes the RBI MPC will hold rates at its forthcoming meet. However, he added that the central bank's commentary on the way forward will be keenly watched and analysed.

"Given the buoyant GDP numbers and sticky inflation (including food), it may signal heightened vigilance on demand trends in the economy and on CPI and its components. It could sound hawkish as far as the transmission of rates and keeping liquidity tight is concerned. The rate cuts may have to wait till at least next fiscal year," said Jasani.

Madhavi Arora, Lead Economist at Emkay Global Financial Services expects rate cuts only after September next year.

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.

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Published: 04 Dec 2023, 02:53 PM IST
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