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Crisil expects RBI to initiate repo rate cuts from mid-2024
New Delhi, April 15, 2024 (ANI): The Reserve Bank of India (RBI) maintained the status quo in the repo rate for the seventh time this month. The rating agency Crisil now expects the rate cut cycle to begin from mid-2024.
The repo rate is the rate of interest at which the RBI lends to other banks.
Along anticipated lines, RBI kept the policy repo rate unchanged at 6.50 percent, the seventh time in a row.
"We expect the RBI to initiate rate cuts in mid-2024," Crisil said in a report, with a rider that weather and crude prices are key monitorables.
"Food, the pain point for inflation last year, could ease if monsoon turns normal this year, as early weather forecasts suggest," it asserted.
Given the uneven inflation trends, the monetary policy committee of the RBI is awaiting clearer signs of easing toward the 4 percent inflation target. "Strong domestic growth momentum has provided it space to do so."
Retail inflation in India is in RBI's two-six percent comfort level but is above the ideal 4 percent scenario. In March, it was 4.85 percent. Inflation has been a concern for many countries, including advanced economies, but India has largely managed to steer its inflation trajectory quite well.
Barring the latest pauses, the RBI raised the repo rate by 250 basis points cumulatively to 6.5 percent since May 2022 in the fight against inflation.Raising interest rates is a monetary policy instrument that typically helps suppress demand in the economy, thereby helping the inflation rate decline.
On inflation, Crisil expects consumer price index (CPI)-linked inflation to soften to 4.5 percent in the current financial year 2024-25 from an estimated 5.5 percent previous year.
"Normal monsoon and healthier farm output should help moderate inflation this fiscal. A non-inflationary budget that focuses on asset-creation rather than direct cash support bodes well for core inflation."
Meanwhile, RBI retained its inflation projection for 2024-25 at 4.5 percent with Q1 at 4.9 percent, Q2 at 3.8 percent, Q3 at 4.6 percent, and Q4 at 4.5 percent.
However, it noted that the inflation outlook will largely be shaped by food price uncertainties (indications of a normal monsoon on one side while increasing the incidence of climate shocks on the other side). (ANI)