The State Bank of India said that the Reserve Bank of India is likely to continue the pause stance in the upcoming Monetary Policy Committee meeting. The upcoming RBI MPC meeting will be held from February 6 to 8.
“We expect the RBI to continue the pause stance in upcoming policy…Strong US non-farm payroll data and wages seem to have pushed back on market expectations for a quick pivot to rate cuts…First rate cut on table from June ‘24… Aug ‘24 looks the best bet now,” it said in its latest report.
In December, the RBI had kept the repo rate unchanged at 6.50 per cent for the fifth consecutive time. The six-member rate-setting panel decided unanimously to keep repo rate unchanged for the fifth time cumulatively after increasing it by 250 bps from May 2022 to December 2022.
The MPC had also left the policy stance unchanged with focus on withdrawal of accommodation in December. The latest SBI report said that the stance should continue to be withdrawal of accommodation.
The SBI report stated that CPI is expected to come around 5.4 per cent in FY24 and 4.6 per cent to 4.8 per cent in FY25. “While the inflation decelerated significantly in 2024 as compared to 2014, the inherent composition remains the same. Food contribution, then and now, remains the same,” it said. India’s retail inflation had increased to 5.6 per cent in December from 5.55 per cent in November.
At an all-India level, CPI inflation declined by 210 bps to 5.6 per cent in December as compared to April 2022 level. During the same period the weighted contribution of core CPI declined by 159 bps with three segments – transportation & communication, clothing and footwear and household goods – contributing 80 per cent of the total decline.
It said that since the last RBI MPC in December, the liquidity deficit has increased.
“Net LAF (liquidity asset facility) has remained in the deficit mode since mid-Sep’23, with the current system liquidity deficit at Rs 2.3 lakh crore and average of Rs 1.8 lakh crore post Dec ’23 policy. However, government surplus cash balances have increased to an average of Rs 3.97 lakh crore post Dec ’23 policy. With higher government surplus cash balances and reduced system liquidity, durable/core liquidity surplus has come down to Rs 1.8 lakh crore,” it added.
Also read: RBI MPC: Governor Shaktikanta Das keeps repo rate unchanged at 6.5% for fifth consecutive time
