SBI Expects Reserve Bank Rate Cut In Q3 FY25

New Delhi, Jun 5 (KNN) The State Bank of India (SBI), in a research report published ahead of the Reserve Bank of India's (RBI) June 5-7 monetary policy committee meeting, stated that the central bank is expected to implement its first rate cut in the third quarter of the current fiscal year 2024-25.

However, the report noted that any potential rate reduction cycle is likely to be shallow, with measures focused on augmenting liquidity.

According to the SBI analysis, while emerging economy central banks often follow the lead of advanced economy counterparts in rate actions, India represents an exception to this pattern.

The report highlighted that the RBI's stance in the upcoming policy meeting should continue to prioritize the withdrawal of accommodative measures.

This projection comes amid expectations that the European Central Bank will embrace a 25 basis point rate cut during its June 6 meeting, as inflation in the region nears its target levels.

The SBI attributed this potential move by the ECB to uneven balancing of growth forecasts and technological leadership between the United States and the European Union.

On the domestic front, the SBI report noted that India's economy grew by 8.2 percent in the fiscal year 2023-24, compared to 7 percent in the previous year.

With a three-year moving average of 8.3 percent, the highest since the fiscal year 2014-15, and a historical Incremental Capital Output Ratio (ICOR) of 4.3 alongside a gross investment rate of 33.3 percent, the report expressed confidence in achieving a 7.5 percent growth rate for the current fiscal year 2024-25.

Regarding inflation, the report stated that the Consumer Price Index (CPI) inflation for April stood at 4.83 percent, while core inflation was recorded at 3.22 percent.

The SBI's projections indicate that CPI inflation is expected to approach the RBI's tolerance band in the first half of the current fiscal year, remain close to 5 percent until May, and then decline to 3 percent in July.

Furthermore, the report anticipates inflation to stay below 5 percent beginning in October until the end of the fiscal year 2024-25.

The report also noted that net liquidity remained in surplus mode from April 1 to April 19, with an average of Rs 1.1 lakh crore, before shifting to deficit mode with an average of Rs 1.4 lakh crore.

This transition was attributed primarily to surplus government cash balances, which averaged Rs 2.5 lakh crore in the current fiscal year until May.

(KNN Bureau)