The Reserve Bank of India will likely keep interest rates unchanged at least until the end of this fiscal year as it evaluates the delayed impact of previous hikes on economic growth and high inflation, a Reuters poll of economists showed.
Last week, the central bank surprised nearly every analyst by leaving the repo rate unchanged at 6.50% after six consecutive hikes, signalling it could consider further rate hikes if necessary.
But a majority of 51 economists now expects the RBI to remain on hold for the remainder of 2023, despite inflation hovering near the top end of the 2-6% tolerance range and no prospect of hitting the mid-point soon, according to the poll.
Only about one-sixth predicted a hike of 25 basis points to 6.75% by the year-end, suggesting the current tightening cycle, which began last May with an off-cycle move just hours before a jumbo U.S. Federal Reserve rate hike, is likely already over.
By January-March 2024, the last quarter of the fiscal year, the median view from the poll still had the repo rate unchanged at 6.50%, but was split between no move and a 25 basis point reduction.
In contrast, India's overnight indexed swap (OIS) rates, often seen as the clearest indication of future policy rate actions, are pricing in rate cuts before end-2023.
"We think (the) RBI goes for a long pause now to evaluate the effect of past rate hikes," wrote Samiran Chakraborty, chief economist for India at Citi.
While inflation likely dipped below 6% for the first time this year to 5.80% in March, it was not expected to reach 4% for at least two years.
"India will see the policy rates remaining 'higher for longer' as domestic growth-inflation dynamics may not provide any room for rate cuts in 2023," wrote Vikas Garg, head of fixed income at Invesco Mutual Fund.
Out of 31 respondents who answered an additional question, more than 80%, or 26, said persistently high inflation would be the reason for the RBI to resume hiking rates, while a minority said it would be due to the Fed hiking rates beyond current expectations.