S&P forecasts 75 basis points repo rate cut in India in 2024-25
Mar 26, 2024
New Delhi [India], March 26 : S&P Global Ratings forecast rate cuts of up to 75 basis points (100 basis points is equal to 1 percentage point) in India by its central bank in the financial year 2024-25.
In line with the projection for US policy rates, the global rating agency largely expects these moves to occur in the second half of the financial year.
Besides India, the rating agency also expects similar rate cuts in Indonesia, New Zealand, and the Philippines.
"In India, slowing inflation, a smaller fiscal deficit and lower U.S. policy rates will lay the ground for the Reserve Bank of India to start cutting rates. But we believe more clarity on the path of disinflation could push this decision at least to June 2024, if not later," the rating agency said.
In India, the Monetary Policy Committee of the Reserve Bank of India (RBI) in its February review meeting unanimously decided to keep the policy repo rate unchanged at 6.5 per cent, thus maintaining status quo for the sixth straight time.
The repo rate is the rate of interest at which RBI lends to other banks.
Deliberating the policy statement on Friday morning after a three-day review meeting, RBI Governor Shaktikanta Das attributed comfortable inflation and firm growth dynamics as the reasons behind maintaining the status quo the policy stance.
Retail inflation in India though, is in RBI's 2-6 per cent comfort level but is above the ideal 4 per cent scenario. In February, it was 5.09 per cent.
In India, S&P expects consumer inflation to decline further to 4.5 per cent on average in fiscal 2025.
RBI maintained India's retail inflation projections for 2023-24 at 5.4 per cent, with with Q3 at 5.6 per cent and Q4 at 5.2 per cent. CPI inflation for Q1:2024-25 is projected at 5.2 per cent; Q2 at 4.0 per cent; and Q3 at 4.7 per cent, with risks evenly balanced.
The RBI typically conducts six bimonthly meetings in a financial year, where it deliberates interest rates, money supply, inflation outlook, and various macroeconomic indicators.
