MPC to stand pat on repo rate, raise GDP forecast


Informist, Monday, Dec 4, 2023

Team Informist

NEW DELHI/MUMBAI – The market is unanimous that the Reserve Bank of India's Monetary Policy Committee will keep the policy repo rate and policy stance unchanged for a fifth consecutive time at the outcome of its meeting on Friday, even though higher food prices pose an upside risk to inflation.

All 25 respondents in an Informist poll of economists, treasury heads, and analysts expect the rate-setting panel to keep the repo rate unchanged at 6.50% and maintain the 'withdrawal of accommodation' stance at the end of its three-day meeting on Friday. The MPC has stood pat on interest rates since April after raising the repo rate by 250 basis points between May 2022 and February.


While the rate-setting panel will draw comfort from October's inflation print, which saw India's headline CPI inflation moderating to below 5%, poll respondents say the committee will be cautious as a persistent rise in onion prices may push inflation prints closer to 6% over the next two months.

"Inflation outlook faces risks from food prices due to weather issues and headline inflation is likely to remain above 5% till Apr-Jun, higher than the (RBI's) 4% target,” said Gaura Sen Gupta, economist, IDFC FIRST Bank. “Focus will remain on ensuring inflation moderates towards the 4% target on a durable basis.”

Last month, RBI Governor Shaktikanta Das said that even as CPI inflation had eased significantly along with a moderation in core inflation, "recurring and overlapping" food price shocks pose a risk to the headline print.

Most poll respondents expect the RBI to revise its 2023-24 (Apr-Mar) GDP forecast higher by up to 30 basis points from the current projection of 6.5% after the GDP grew at a robust 7.6% in Jul-Sep.

As strong economic data allay the central bank’s concerns about growth and give it more room to focus on inflation, analysts expect the rate-setting panel to strike a hawkish tone.

“The macro environment of resilient growth, anchored core inflation but high food inflation creates the setting for an extended pause," economists at Nomura said. "However, we believe the RBI will persist with its hawkish talk (emphasising that it is serious about the 4% target) and walk (via tighter liquidity).”

However, if growth falls below the RBI's projection of 6.5% and headline inflation trends closer to core in Jul-Dec 2024, then the policy bias should gradually shift towards easing, Nomura said.

With the US Federal Reserve widely expected to start its rate-cutting cycle in March, most poll participants see the Monetary Policy Committee starting doing likewise from the second half of 2024. 

Fed fund futures traders are now pricing in a 60% chance of a rate cut by the Fed in March, compared with 21% just over a week ago, according to the CME's FedWatch tool.

India was already going to be one of the last major emerging market economies to kick off its easing cycle, but when rate cuts do begin next year, they will be deeper in India than in most other economies, a report by Capital Economics said.

The market will be hoping that the RBI governor gives some clarity on his comments in October on open market operation sales.

At the previous policy meeting, Das had surprised everyone by saying the central bank may have to consider open market sales of government bonds to drain liquidity through the auction route.

Economists at Barclays believe the RBI will want to keep the weighted average call rate above the repo rate consistently to facilitate faster transmission from the short end of the curve. They do not think the RBI is looking to tighten liquidity excessively, lest it hinder growth.

"We think the bank will likely want to avoid a relapse of the WACR (weighted average call rate) below/ around the repo rate due to excess liquidity conditions, which implies it will continue to conduct two-way operations as needed," Barclays said in a report.

Following are the expectations of respondents on the rate action and policy stance by the Monetary Policy Committee on Dec 8:

Anand Rathi GlobalUnchangedWithdrawal of accommodation
Axis Mutual FundUnchangedWithdrawal of accommodation
BarclaysUnchangedWithdrawal of accommodation
Capital EconomicsUnchanged--
CRISILUnchangedWithdrawal of accommodation
Deutsche BankUnchangedWithdrawal of accommodation
Emkay Global Financial ServicesUnchangedWithdrawal of accommodation
Equirus CapitalUnchangedWithdrawal of accommodation
Federal BankUnchangedWithdrawal of accommodation
HDFC BankUnchangedWithdrawal of accommodation
ICICI BankUnchangedWithdrawal of accommodation
ICICI Securities Primary DealershipUnchangedWithdrawal of accommodation
ICRAUnchangedWithdrawal of accommodation
IDFC FIRST BankUnchangedWithdrawal of accommodation
India First LifeUnchangedWithdrawal of accommodation
Karur Vyasa BankUnchangedWithdrawal of accommodation
Kotak Mahindra BankUnchangedWithdrawal of accommodation
Moody's AnalyticsUnchanged--
PNB GiltsUnchangedWithdrawal of accommodation
Quantum Mutual FundUnchanged--
Standard Chartered BankUnchangedWithdrawal of accommodation
State Bank of IndiaUnchanged--
STCI Primary DealershipUnchangedWithdrawal of accommodation
YES BankUnchangedWithdrawal of accommodation

Written by Pratiksha and Subhana Shaikh

Edited by Rajeev Pai

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd by NSE Data & Analytics Ltd, a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt Ltd.

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