RBI unlikely to cut rates before June: Deutsche Bank

According to the report by Deutsche Bank, the interest rate cycle appears to have peaked and the Reserve Bank of India (RBI) is unlikely to go for further hikes, unless absolutely necessary. The rate is likely to be cut in June, it said. The RBI hiked the repo rate last on February 23, when it was raised to 6.5 per cent.

With the RBI continuing to maintain tight liquidity, short-term rates are hovering around 6.85-6.9 per cent, which is 35-40 bps higher than the repo rate. Image Courtesy: Reuters.

The Reserve Bank-led Monetary Policy Committee (MPC) is unlikely to tweak repo rates till June next year, according to a foreign brokerage report. The bi-monthly MPC meeting started on Wednesday and the decision on rates will be announced on Friday.

According to the report by Deutsche Bank, the interest rate cycle appears to have peaked and the Reserve Bank of India (RBI) is unlikely to go for further hikes, unless absolutely necessary. The rate is likely to be cut in June, it said. The RBI hiked the repo rate last on February 23, when it was raised to 6.5 per cent.

With the RBI continuing to maintain tight liquidity, short-term rates are hovering around 6.85-6.9 per cent, which is 35-40 bps higher than the repo rate.

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"We see the central bank cutting the policy repo rate by 75 bps in 2024 and another 25 bps in early 2025. Earlier, we were expecting a 100 bps of repo rate cut in 2024 itself, starting from April 2024, but given that the Fed is likely to start cutting rates from June 2024, we have pushed back the start of the rate cut cycle to June 2024," the analysts said.

"We now expect 25 bps rate cuts in each of the quarters beginning from Q2 of 2024 totalling 100bps of easing in FY25, which will likely bring down the repo rate to 5.50 per cent by early 2025," they said.

However, the analysts said the RBI's final decision will depend on the Fed's move on rates. If Fed goes for a rate hike in early 2024, or does not go for a rate cut in the whole of next year, it could delay the RBI's rate cut cycle.

The report said India's economy will double in size to USD 7 trillion by the end of the decade with per capita income also nearly doubling to USD 4,500 by 2030.

And even before the end of this decade, India is likely to become the third largest economy after the US and China, overtaking Japan and Germany, the analysts said. However, Deutsche Bank cut their forecast for the next two years, citing the current tight interest regime.

"We expect real GDP growth to slow down in FY25 and FY26 to 6.3 per cent and 6.2 per cent, respectively, from a likely 6.8 per cent in FY24," they added.

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