VIEW: Pantheon Looking For First Rate Cut In April 2024

RBI left rates on hold at its December meeting but retained its tightening bias with the “withdrawal of accommodation” continuing. Pantheon notes that the central bank didn’t show “any appetite for normalisation” and as a result pushed out its first 25bp rate cut to April from February with 50bp of easing in 2024 but the risks are skewed to the downside. It believes that easing can return inflation to target in Q1 due to lower vegetable prices.

• “Crucially, they expect average inflation to plunge to the target of 4.0% in Q3 next year, before it rebounds somewhat to 4.7% in the following quarter.”
• “From our perspective, these short- and long-term projections seem overly pessimistic, considering that the recent surge in vegetable prices is starting to roll over, and the fact that underlying core price pressures continue to wane rapidly.”
• “Nonetheless, it sounds like the MPC first wants confirmation that the recent build-up in food price pressures is temporary, before any talk of rate cuts comes into the picture.”