India’s central bank left rates unchanged on Thursday, signalling that interest rate cuts may be some time away as it focuses on the “last mile of disinflation” towards its 4% medium-term target and the economy remains resilient.

The six-member monetary policy committee, consisting of three Reserve Bank of India (RBI) and three external members, left the key repo rate unchanged at 6.50%, for the sixth straight meeting. The RBI raised rates by 250 basis points between May 2022 and February 2023.

All but one of the 60 economists in the Jan. 10-Feb. 1 Reuters poll expected the central bank to hold rates.

Monetary policy must continue to be actively disinflationary, RBI Governor Shaktikanta Das said in his statement. “The last mile of disinflation is always the most challenging and that has to be kept in mind,” Das said.

The commitment to achieve inflation of 4% on a durable basis has to continue, he said at a press conference following the review.

Five out of six members voted in favour of the rate decision and the monetary policy stance of ‘withdrawal of accommodation’, which was also left unchanged.

Committee member JR Varma voted for a 25 basis point cut in rates and a neutral stance.

Economists see the central bank holding off on rate cuts till the second half of 2024.

“The central bank is likely to change its stance in the first quarter of 2024-25 and start its rate cut cycle only by the second quarter,” said Sakshi Gupta, principal economist at HDFC Bank.

“However, the chances of rate cuts coming in later than expected rather than sooner are increasing, given the RBI’s cautiousness on inflation,” Gupta said.

Elara Capital sees a total of 75 basis points in rate cuts when the rate-cutting cycle begins around the second quarter of 2024-25, said Garima Kapoor, economist at the brokerage.

The Indian benchmark bond yield rose 4 basis points after the decision while equity markets dipped and the rupee was marginally lower, trading at 82.94 per dollar.

The Indian economy is expected to expand 7.3% in the year ending March 31, 2024 and the central bank projected growth of 7% in 2024-25, in line with the federal government’s forecast.

Against an uncertain global environment, the Indian economy has performed “remarkably well” in recent years, Das said. Growth is outpacing most forecasts while inflation is on a downward trajectory, he said.

The central bank estimates retail inflation to come in at 5.4% in 2023-24, unchanged from its previous projection. For next year, assuming normal rains, retail inflation is expected at 4.5%, Das said.

“Large and repetitive food price shocks are interrupting the pace of disinflation that is led by the moderation of core inflation,” the MPC said in its statement.

Annual retail inflation picked up to 5.69% in December from November’s 5.55%, well above the RBI’s 4% target. However, a sustained slowdown in core inflation and a fiscally prudent budget have raised expectations for an easing in inflation.

The central bank said it would be “nimble” in managing banking system liquidity using all tools at its disposal, but did not offer markets clear guidance on whether it would be willing to ease cash conditions as inflation concerns recede.

The objective is to keep the overnight market rates close to the policy rate, RBI Deputy Governor Michael Patra said.

Tight liquidity conditions have meant that the overnight market interest rates have remained higher than the policy rate for much of the last quarter.

“We continue to expect RBI to fine tune liquidity conditions to manage the overnight to inch towards the repo rate,” said Upasna Bhardwaj, chief economist at Kotak Mahindra Bank. She sees this as the first step in looser monetary policy, followed by a change in stance and “shallow” interest rate cuts in the second half of 2024-25.