VIEW: ANZ: Rates Higher For Longer, Upside Bias In The Near-Term

ANZ note that “If food prices remain higher for longer, there could be an imminent risk of inflation expectations becoming entrenched at elevated levels. As such, there is an upside bias for the repo rate in the near-term.”

• “However, like the RBI, our base case for now is the recent food price shock will recede, and the RBI will not hike further. At the same time, the policy rate could remain higher for longer.”
• “The inflation projection of 5.2% for Q1 FY25 is quite high. The RBI’s insistence on aligning inflation to the 4% target means they will need to remain hawkish for longer, especially as growth is expected to hold up well.”
• “The ex-ante real repo rate now looks more depressed than it did at the last policy meeting. It is now likely to average 1.1% for FY24, compared to 1.4% before the food price shock.”
• “Consequently, the expectations of a shift to a neutral stance and the possibility of a rate cut must be pushed out. We do not expect any rate cuts before Q3 2024.”