No rate cut before Q4FY24

New DelhiGiven such uncertainty on the inflation front, the likelihood of an extended pause on interest rates has been reinforced, says Suman Chowdhury, Chief Economist, and Head- Research, Acuite Ratings & Research.

“In our opinion, any possible rate cut may not materialize before the last quarter of FY24. The liquidity will be slightly tighter than expected in the near term due to the ICRR imposition and this may lead to some increase in short-term rates,” Chowdhury said.

Clearly, the Reserve Bank of India (RBI) takes into cognizance the upside risks to inflation emerging from higher global food prices accruing from increased climate risks and also the recent hardening in crude oil prices.

Madhavi Arora, Lead Economist at Emkay Global Financial Services, said the immediate impact of RBI absorbing liquidity via ICRR will be mild hardening of money market rates for borrowers including NBFCs/corporates, while for banks as well there will be slight impact on their NIMs (3-4 bps) depending on the instruments where they were parking the money (assuming 14.5 per cent effective CRR).