RBI May Keep Repo Rate Steady At 5.50% Despite Room For More Rate Cuts, Says BofA's Rahul Bajoria

The Reserve Bank of India is expected to keep repo rate steady at 5.50% in the ongoing policy meeting despite there being enough room for the central bank to reduce more, said Rahul Bajoria, head, India and ASEAN Economic Research, BofA Global Research.

The RBI's Monetary Policy Committee is scheduled to announce policy meeting outcome on Wednesday.

"I will look for a dovish guidance from the central bank and promise of not acting now. And continue to watch data to understand what can be done in two-three meetings," he said.

Inflation is under control, growth outlook is positive, which does indicate that there is room to cut rates in the present scenario, Bajoria said. However, determining the right time to do it is important, he added.

Uncertainty is still prevailing on financial markets which may convince the RBI to take a pause. If need be, the central bank deploys limited policy space as Governor Sanjay Malhotra alluded in the previous policy announcement.

The current monetary policy cycle was essentially triggered after India's growth number started to weaken in late last year. Since then, BofA has noticed both the monetary and fiscal policies have turned counter cyclical, he said.

Inflation may become a pivot factor upon which they can give some guidance. While inflation is a necessary factor, it is the growth expectations which anchor the RBI's views, he said.

After the festive cycle gets over, in case growth slows, inflation weakens further, RBI may go for more rate cuts, he said. Largely, domestic factors are driving the RBI in terms of policy actions which is the case for other Asian central banks as well, according to him.

At this point of time, market participants have seen a weaker dollar for an extended period which has given a lot of room to Asian central banks to preempt and cut before the US Federal Reserve reduces rate. Hence, if the dollar index remains low for some time, it does give more room for a rate cut, he said.

Bank of America has a consensus call that the US Fed will not cut rate through 2025. US is settling at a higher tariff rate than earlier anticipated and a stagflation situation does not give a lot of room for a rate cut, he added.