The 4:2 split in RBI's repo rate decision suggests loan interest rates may fall soon; Here's why

The Reserve Bank of India (RBI), for the eighth consecutive time, on Friday kept repo rate unchanged at 6.5 per cent. However, the 4:2 split in the Monetary Policy Committee (MPC) has led some analysts to believe that there might be a rate cut soon.

The decision of keeping interest rate unchanged and also revising upwards the GDP growth projection to 7.2 per cent for 2024-25 from 7 per cent earlier have boosted the sentiments of investors and the Indian stock market at large.

BSE Sensex reacted to the news and touched a lifetime high of 76,795.31 on Friday, before closing the day’s trade 2.16 per cent or 1,618.85 points higher at 76,693.36.

NSE Nifty increased 498.8 points to an intraday high of 23,320.20, before closing up 2.05 per cent or 468.75 points at 23,290.15.

Will RBI cut repo-rate in next MPC meet?

With positive cues, analysts predict that the RBI may cut the key lending rate in its following MPC later this year.

“MPC’s decision to keep policy rates unchanged, though expected, has a surprise element since two out of six members were in favour of rate cut. Jayant R Varma was in favour of a rate cut in the last meeting also. This means the number of members in favour of a rate cut is increasing. So a rate cut is likely in the next meeting,” said VK Vijayakumar, Chief Investment, Strategist, Geojit Financial Services.

The decision to keep the repo rate unchanged was taken with a 4:2 majority, RBI Governor Shaktikanta Das said.

Varma and Ashima Goyal voted to reduce the policy repo rate by 25 basis points and for a change in stance to neutral during the MPC.

Shaktikanta Das, Shashanka Bhide, Rajiv Ranjan and Michael Debabrata Patra to keep the policy repo rate unchanged and to remain focused on withdrawing accommodation to ensure that inflation progressively aligns with the target.

“Another positive from the Governor Das’s speech is the upward revision in FY25 GDP growth rate. This augurs well for corporate earnings and, therefore, for the stock market,” Vijayakumar said.

“With the economic outlook revised upwards, we anticipate the RBI will focus on controlling inflation, aiming to bring it under the 4 per cent target. Despite a gradual decline over the past year, consumer headline inflation has averaged 4.8 per cent in the last three months. While core inflation has eased, food inflation remains high, affecting household expenditure," said Shishir Baijal, Chairman and Managing Director, Knight Frank India.

Baijal further said: “An expected above-normal monsoon should help control food prices and bring the food inflation under control. This would prompt the RBI to perhaps lower interest rates towards end of CY (calendar year) 2024 thereby, further fuelling growth especially in the real estate sector, particularly benefitting the affordable housing segment.”

“It is reasonably expected that RBI will aim to guide repo closer to 4 per cent in the medium term; however, the nudges will be gentle and slow. The fact that the vote was 4-2 this time indicates that there is mounting pressure to move repo down soon to ease growth and inflation pressures on the economy,” said Utkarsh Sinha, Managing Director, Bexley said.

“The RBI growth upgrade in policy reaffirmed India’s continued robust growth post pandemic. Domestic growth inflation outlook has moved favourably with inflation moving below 4 per cent in Q2 (second quarter). The regulatory measures like setting up of ‘ Digital Payments Intelligence platform ’ will harness advanced technologies to mitigate fraud risks. Rationalising the definition of bulk deposit from existing Rs 2 to 3 crores will facilitate better asset liability match for ASCBs by reducing sensitivity to interest rate fluctuations,” said Dinesh Khara, SBI Chairman.

Also Read: RBI monetary policy meeting result: Repo rate unchanged at 6.5%, announces Governor Shaktikanta Das

Also Read: Why has RBI kept repo rate steady at 6.5%? How does it affect you?

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