US Federal Reserve Chair Jerome Powell had a direct message this week: rate cuts could be a “couple years out.” It’s probably giving India’s policymakers something to pause about.  

Economists tracking India aren’t altering their forecasts for a rate cut as yet, which they expect will come after the US starts easing. But the possibility for the Reserve Bank of India to ease policy in the next 12 months is much lower with traders in the US markets pulling back wagers on any cut.  

While a pivot is being debated due to the easing inflation dynamics in India, “it is unlikely the RBI would be too adventurous in this fast evolving and fluid world and is unlikely to precede the Fed in reversing its course of rate hikes in the future,” said Madhavi Arora, an economist with Emkay Global Financial Services Ltd.

RBI Governor Shaktikanta Das needs to keep financing conditions easier to aid growth, while also maintaining adequate rate differential to attract foreign portfolio flows. He kept rates on hold last week and has an eye on inflation, echoing most global policymakers who are still waging a war on still-elevated food and fuel prices. 

While RBI officials maintain that the country’s policies are independent of the Fed, policy actions by Das, especially since the pandemic, may indicate some coordination. 

“In light of widening growth differentials to the rest of the world, RBI does not need to reduce rates before the Fed does,” said Rahul Bajoria, economist with Barclays Bank Plc. “RBI has managed the narrowing rate differentials between itself and Fed credibly by maintaining macro stability,” he added.

Most traders in India’s bond market were not expecting a rate cut by the RBI before the end of the year even before the Fed’s hawkish pause. The benchmark 10-year Indian bond yields climbed 2 basis points to 7.02% while swap rates were little changed after the Fed announcement.

“Currently we are forecasting a prolonged pause in India,” said Anubhuti Sahay, economist with Standard Chartered Bank.  “The rate cutting cycle in India, whenever it starts, this time will be a shallow cycle.”