India interest rates likely to remain unchanged until mid-year
Business
New Delhi eyes $2.4bn privatisation by March 31
BENGALURU (Reuters) – The Reserve Bank of India will hold its key interest rate steady at 6.50 per cent on Feb. 8, according to economists polled by Reuters who expected the central bank to keep rates unchanged until at least July, longer than some developed market central banks.
After hiking its repo rate by a cumulative 250 basis points – much less than most of its major peers – the RBI has kept it untouched since February 2023 as inflation largely remained within the bank's 2%-6% target range.
A few weeks ago, RBI chief Shaktikanta Das expressed confidence current monetary policy could bring inflation back to its 4pc medium-term target.
But with inflation close to the upper band of the target range and India holding onto its title of fastest-growing major economy, a rate cut is unlikely anytime soon.
All but one of the 60 economists in the Jan 10-Feb. 1 Reuters poll expected the central bank to hold the repo rate at 6.50pc at the conclusion of its Feb 6-8 meeting.
Read more: Not a good news as there won't be any US interest rate cuts at least till May
A near two-thirds majority – 41 of 60 economists – predicted the central bank would keep the rate unchanged until at leastthe third quarter, compared to expectations the US Federal Reserve would lower its key interest rate next quarter.
"We expect the RBI to keep rates on hold next week. Rate cuts will likely only begin in the second half of 2024 as headline inflation stabilises nearer to the 4% target midpoint," said Aditi Raman, associate economist at Moody's Analytics.
"While there is a risk of inflation breaching the 6pc upper limit, the RBI is likely to monitor commodity and food prices closely."
Although there was no clear consensus around the timing of the first rate cut, a significant minority, 25 of 56, forecast the easing would start in the third quarter. Only 18 of those expected the first cut before July.
Those expectations were despite inflation mostly predicted to remain above 4pc this year and next.
"The RBI finds itself in a reasonably comfortable position... the economy continues to be in a Goldilocks phase, with growth broadly steady, seemingly without resulting in demand-side inflationary pressures, yet," noted Rahul Bajoria, chief EM Asia economist at Barclays.
The economy was forecast to grow 6.9pc this fiscal year and 6.3pc in FY 2024-25, a separate Reuters poll showed.
In her latest annual budget speech, Finance Minister Nirmala Sitharaman said India would reduce its budget gap sharply in fiscal year 2024-25 and focus on infrastructure and long-term reforms to drive growth.
The government reduced its fiscal deficit target to 5.1pc of GDP in 2024-25 from 5.8pc this year.
A $2.4 BILLION PRIVATISATION
India's government expects to raise between 180 billion and 200 billion rupees ($2.2 billion to $2.4 billion) through the sale of stakes in state-run firms in the fiscal year ending March 31, a top government official told Reuters on Friday.
Prime Minister Narendra Modi's administration moved from the usual practise of setting a stake sale target in its budget announced on Thursday. The government slashed the stake sale target of 510 billion rupees for the current year, and said it would now raise 300 billion rupees through both stake sales and asset monetisation in the fiscal year through March 2024.
Modi's ambition of privatising state-run firms has taken a back seat due to impending elections, but his government has delivered more stake sales than any previous administration.
His government has not set a target for the next fiscal year, ending in March 2025, in a break from usual practice.
Tuhin Kanta Pandey, the top bureaucrat at the Department of Investment and Public Asset Management said New Delhi would receive another 120 billion rupees through asset monetisation in the current fiscal year.
But the government will not "aggressively" launch minority stake sales just because state-run companies' shares are at new highs, he said in an interview.
Pandey said the government will continue to monitor Life Insurance Corp of India's financial and share price performance before pursuing any further share sale.
"LIC shares have just reached its initial public offering (IPO) price and we want retail investors, who subscribed to the IPO, to gain," he said.
The insurer's share price has surged nearly 60pc since November, raising expectation of another minority stake sale.
India has been unable to sell its Hindustan Zinc (HZL) shares for the last two years as decisions taken by the company's management have spooked both existing and potential investors, Pandey said.
HZL, in which the state owns a 29.54pc stake, had decided to demerge its businesses and that proposal is being currently examined by the government, Pandey said.
The process of privatising state-run companies like Shipping Corp of India and will continue, Pandey said, adding the government plans to list SCI's demerged land company in a month and that will pave the way for privatisation.
