RBI may hit the pause button on rate hike next month

Even as India’s retail inflation remained above RBI’s tolerance limit of 6% for the second consecutive month in February, global brokerage firm Nomura expects the central bank to not increase interest rates in its April meeting.

The expectations of Nomura analysts Sonal Varma and Aurodeep Nandi are against the consensus of a 25 basis point rate increase in FY24’s first meeting of the monetary policy committee on April 3-6.

The brokerage expects headline inflation to fall to 5.5% in March, with core easing to 5.7%. Beyond March, it expects a material inflection lower (to below 5%) in both headline and core inflation, with both likely to average 4.9% in FY24.

“Favourable base effect will play some role, but we also expect continued moderation in the underlying momentum, due to weaker growth,” Varma said.

Kotak Institutional Equities, on the other hand, sees limited space for the RBI to ignore the above 6% inflation prints and continue to expect the repo rate to be hiked by a 25 bps hike in the April meeting.

“Inflation has stayed above 6% for two consecutive months. Average inflation for 4QFY23 will likely be at 6.2%—50 bps higher than RBI’s estimate. It will be difficult for the RBI to ignore these inflation prints (even with global financial markets in some turmoil) after being hawkish in the last policy,” Kotak said.