Inflation Moderates, But RBI Cautious: Experts Predict No Rate Cut Until June

India's January Inflation at 5.1%: A Three-Month Low

India's consumer price index (CPI)-based retail inflation showed a promising decline to 5.1% in January, a three-month low primarily influenced by a slower increase in food prices. Concurrently, core inflation, a critical economic indicator, marked its lowest level in over 50 months.

Finding multibagger stocks is important for building wealth. Discover potential multibaggers at Sovrenn Discovery 

Inflation Within Tolerance, But Above RBI's Target

While the current inflation rate sits comfortably within the Reserve Bank of India's (RBI) upper tolerance band of 6%, it remains above the central bank’s target of 4%. This discrepancy prompts experts to believe that the RBI may not initiate rate cuts in the first half of the financial year 2025 (FY25).

Experts Predict No Rate Cut Until June

Barclays' Perspective: Q2CY24 Easing with a Hawkish Stance. Rahul Bajoria, MD & Head of EM Asia (ex-China) Economics at Barclays, anticipates policy easing to begin in the second quarter of the calendar year 2024 (Q2CY24). Despite this, the outlook remains hawkish, with the last phase of disinflation seen as the most challenging. Bajoria suggests potential delays, given signals of comfort on domestic growth and the Federal Reserve's cautious approach.

MOFSL Group's Stance: No Monetary Policy Action in 2024

Nikhil Gupta, Chief Economist at MOFSL Group, predicts stable inflation between 5-5.5% in the first half of the calendar year 2024 (H1CY24), with a potential easing towards 4% in Q3. Gupta asserts that monetary policy decisions will hinge on the domestic growth trajectory or unexpected moves by the US Federal Reserve, with no anticipations of policy actions based on inflation in 2024.

Investing has built huge wealth for several HNI investors. Learn investing FREE OF CHARGE at Sovrenn Education 

Emkay Global's View: RBI's Caution and Global Dependencies

Madhavi Arora, Lead – Economist at Emkay Global Financial Services, notes the RBI's policy alignment with the Federal Reserve over the past two years. Arora suggests that the RBI is unlikely to precede the Fed in any policy reversal in CY24. The global economic narrative, particularly decisions by the Fed, will influence policy management, emphasizing the need for vigilance.

Acuité Ratings & Research: El Nino Risks and Policy Timing

Suman Chowdhury, Chief Economist and Head – of Research at Acuité Ratings & Research points to potential upside risks from the ongoing El Nino phenomenon affecting Rabi crop output. While retail core inflation remains at 3.6% in Jan '24, providing comfort to the central bank, Chowdhury cautions against expecting any rate cuts before August 2024. The timeline for policy decisions, he emphasizes, will also be influenced by global factors, including the stance of the Federal Reserve and other developed nations.

Conclusion: Monitoring the Last Mile of Disinflation

As India experiences a decline in inflation, experts unanimously urge caution. While the current rate is within RBI's tolerance, it remains above the target. Analysts predict no rate cuts until June, emphasizing the challenges of the last phase of disinflation. Global factors, especially the Federal Reserve's decisions, will influence policy. Investors are advised to remain vigilant, considering the evolving economic landscape and the RBI's measured approach.

Also Read: Navigating 2024: RBI Striking the balance between growth and inflation in India