“The rate-cut cycle is likely to be shallow, and given global uncertainties, a neutral stance offers the MPC more flexibility,” said Aditi Nayar, the chief economist at Icra Ratings said, adding to begin with, there will be a 25 bps reduction likely on Friday.
Pencilling in a 25 bps repo cut, Dipti Deshpande, the principal economist at Crisil Ratings said the budget has pursued the path of fiscal tightening but has also ensured it remains growth supportive for one and for another led by softer food prices, retail inflation is expected to decline in January inching closer to the 4% target. The tighter fiscal stance and expectations of lower inflation should open the path for rate cuts.
Nomura’s analysts — Nathan Sribalasundaram, Sonal Varma, Aurodeep Nandi, also said in a note that, in their base case scenario, the RBI does not over-deliver but in the medium term, still expect a deeper cutting cycle basing their pessimism to the bleeding rupee and the still unfolding trade wars.
“Historically, the longest the RBI has waited between the end of a rate hike cycle and start of a rate cut cycle is 11 months. This time it has been almost a two-year gap. Therefore, rate cuts should start as soon as possible, in our view. Otherwise, there is a non-trivial risk of falling behind the curve,” they said in a note on Wednesday.
Kaushik Das, the chief economist at Deutsche Bank India also expects a quarter percentage point reduction, saying the baton now passes from the fiscal authorities to the RBI to support growth.
The Budget boost alone will not revive growth, in our view, as only a small fraction of the households pay taxes. Ultimately, the monetary policy will have to do the heavy lifting to support growth in 2025 and beyond, he said.
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