The Reserve Bank of India (RBI) is likely to maintain its current interest rates until at least July, as per a recent survey of economists conducted by Reuters. This duration might be slightly longer than what is anticipated for the U.S. central bank. The decision is based on India's robust economic growth and persistent inflation concerns.

India's economy showcased impressive growth, recording an 8.4% expansion in the fourth quarter of 2023, which outpaced other major economies. However, inflation remains a concern, hovering near the upper limit of the RBI's target range of 2%-6%, indicating a reluctance to consider rate cuts in the near future.

In a poll conducted from March 15 to 22, all 56 economists surveyed unanimously agreed that the RBI would maintain the repo rate at 6.50% during its meeting scheduled from April 3 to 5.

Despite this consensus, opinions varied on the timing of the first rate cut. Among 52 respondents, nine suggested it could happen in the next quarter, while 24 favored the third quarter, and 17 pointed to the fourth quarter. Median projections indicate a potential rate decrease to 6.25% by the end of September and further down to 6.00% by year-end.

According to Alexandra Hermann, a lead economist at Oxford Economics, the sustained high headline inflation and robust GDP growth in the fourth quarter are likely to make members of the Monetary Policy Committee (MPC) cautious about initiating rate cuts prematurely.

Although core inflation has been on a downward trajectory for a year, the MPC may prefer to wait until headline inflation shows clearer signs of aligning with the mid-point target of 4%.

Forecasts from the survey suggest that inflation, currently at 5.09% as of February, may dip to 4.00% by the third quarter before inching up again. Average price increases are expected to be 5.40% for the current fiscal year and 4.60% for the next.

Despite a projected slowdown in growth to 6.6% in the next fiscal year from the current year's 7.6%, it would still outpace growth rates in other major economies. This scenario diminishes the urgency for the RBI to lower interest rates, especially in comparison to its counterparts like the Federal Reserve.

The Federal Reserve is expected to implement its first rate cut in June, according to a separate Reuters poll. However, there are increasing risks that this might be delayed until later in the year.

Aditi Gupta, an economist at Bank of Baroda, suggests that while the Federal Reserve plans for rate cuts, India's growth and inflation dynamics may lead the RBI to maintain higher interest rates for a longer period. Nevertheless, it's expected that the Federal Reserve will implement more substantial rate cuts compared to the RBI, ensuring that the interest rate differential remains consistent with historical trends.

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