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The Reserve Bank of India (RBI) may cut its key policy rate by 25 basis points to 6.25 percent in December to boost economic growth. Inflation is expected to remain moderate in the coming days. Inflation increased to 5.49 percent in September. However, the forecast expects it to decline to 4.9 percent in the current quarter. The report said that inflation may come down to 4.6 percent in the January to March quarter. This will allow RBI to reduce rates. The interest rate in the last 10 meetings is the highest since 2019.
RBI Governor Shaktikanta Das said the balance between inflation and growth is “well maintained”. He expects inflation to ease in the next quarter, Live Mint reported. At the Monetary Policy Committee meeting, RBI changed its stance to neutral from its previous stance. Now, economists expect a minimal slowdown in growth and hence a cut in interest rates.
Repo rate cut expected by 25 basis points
However, according to the survey, 30 out of 57 economists expect the repo rate to be cut by 25 basis points to 6.25 percent in the next monetary policy meeting. The rest do not expect any change in the rates. India is expected to become the fastest growing economy. However, the growth estimate has come down to 6.9 percent in the current financial year and 6.7 percent in the next year, which was 8.2 percent in FY 23-24. This is much lower than RBI's estimate of 7.2 and 7.1 percent.
Obstacles to easing monetary policy
“Our baseline outlook is based on the next GDP report due in late November, which is unusually lower than the committee's forecasts,” the report quoted Pantheon economist Miguel Chanco as saying. I don't think economic growth in India is faster than other major emerging markets, hampered by some monetary policy easing. “It is one of the least developed major emerging markets on a per capita basis.”
“What matters for policy is the direction of travel and it is clear from most economic indicators that momentum is being lost,” Chanco said. Meanwhile, projected inflation will remain above the RBI's medium-term target of 4 percent until early 2026, leaving little scope for the central bank to cut rates.
RBI may cut interest rates again in February
According to the poll, after cutting interest rates in December, RBI may cut interest rates again in February. The US Federal Reserve and the European Central Bank have already cut interest rates by at least 50 basis points. However, it is still not clear whether the RBI will announce its first interest rate hike in a long time.
What are Oxford Economics economists saying?
“Monetary policymakers are emphasizing their caution through volatile food prices and consumer basket fundamentals, so it is likely that the Bank will continue to control inflation dynamics,” the report quoted Oxford Economics economist Alexandra Harman as saying. Will wait a long time to bring in.
“The risk of an interest rate cut in December has increased, especially if third quarter (July-September) GDP declines,” he said. “Nevertheless, we believe the RBI is in no immediate rush and will wait until its first meeting in 2025 to loosen monetary policy settings.”
