India Monetary Policy February 2024

India: RBI stands pat for sixth consecutive meeting in February

On 8 February, the Reserve Bank of India (RBI) left the repo rate unchanged at 6.50% for the fifth month running, as expected by the market. It also left its standing deposit facility and marginal standing facility rates unchanged at 6.25% and 6.75%, respectively. Five board members voted for the decision, while one voted for a 25 basis point cut.

To justify its decision, the RBI argued that past tightening was still “working its way through the economy”—just as it did at its last meeting in December. Inflation remains above the RBI’s 4.0% target; past shocks to food prices—such as last year’s monsoon, which was the weakest in five years—have prevented inflation from declining more sharply.

Meanwhile, the RBI said it forecasts inflation to average 4.5% in the fiscal year starting in April and GDP growth to average 7.0%.

The RBI said it would keep its policy stance focused on the “withdrawal of accommodation”, maintaining a hawkish tone.

The Consensus is for the RBI to begin lowering interest rates in the next fiscal year, which starts in April.

The RBI’s next meeting is due on 3–5 April.

Analysts at Nomura said:

“With the economy in an extended Goldilocks period, with strong headline growth, capped core inflation and the risk of higher food inflation, there is little impetus for the RBI to change either its policy rates or stance […]. We maintain our call that the RBI will deliver 100bp of rate cuts cumulatively starting August, with 75bp of cuts in 2024 and another 25bp in Q1 2025.”

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