The Reserve Bank will announce its Monetary Policy decision on February 8. While most analysts expect the Central Bank to maintain status quo in terms of broad policy rates, all eyes are on the liquidity situation. While the tighter liquidity condition could spark a debate on possible easing, expectations of inflation remaining higher than RBI’s 4% target suggests a cautious approach. Let’s hear in some expert views-
Devendra Kumar Pant, Chief Economist and Head (Public Finance) of India Ratings & Research, “expects RBI to maintain status quo on policy rates in February 2024 monetary policy. Ind-Ra notes that the liquidity situation is tight and weighted average call money rate (WACR) is hovering around upper end of the LAF corridor suggesting tighter liquidity conditions.
The liquidity conditions in March 2024, especially second fortnight are likely to remain tight due to advance tax/GST outflows. While the tighter liquidity condition has some argument for some easing, expectations of inflation remaining higher than RBI’s target of 4% suggests the cautious approach to be followed by the RBI. Even if inflation trajectory remains in line with RBIs expectations, the RBI may hold policy rates at least in next couple of MPC meetings.”
Saurav Anand, Economist-South Asia, Standard Chartered Bank India too expects the RBI to maintain status quo and “keep the repo rate unchanged and maintain its “withdrawal of accommodation” stance at its 6-8 February meeting.
The focus will be on MPC commentary amid a likely continued downtrend in headline CPI. We think the MPC will refrain from sounding outright dovish amidst geopolitical uncertainty and frequent food-price shocks. We expect it to maintain its inflation and GDP forecasts for FY25. However, the Q4-FY25 inflation forecast will be watched to assess the real rate trajectory.
Ajit Kabi, Research Analyst at LKP Securities added that, “The economic outlook remains healthy. As core inflation and wholesale inflation are steady, the headline inflation is likely to settle down in coming periods with the arrival of Rabi harvests.
Given the tightening liquidity condition, RBI is likely to support economic growth with cautious stance on inflation. Consequently, we expect the unchanged policy rate and possibility of shift in stance to Neutral. Additionally, RBI may take steps to improve liquidity conditions. We expect policy rate cut by June, 2024.”