RBI may cut its key policy rate by 25 basis points to 6.25 percent in December to boost economic growth. Now, economists expect minimal slowdown in growth and hence a rate cut is highly likely.
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 rose to 5.49 percent in September. However, the forecast expects it to fall 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 the RBI to reduce rates. The interest rate for the last 10 meetings is the highest since 2019.
RBI Governor Shaktikanta Das said the balance between inflation and growth is “well struck”. He expects inflation to ease in the next quarter, Live Mint reported. At the monetary policy committee meeting, the RBI changed its stance to neutral from the previous return to accommodative stance. Now, economists expect minimal slowdown in growth and hence a rate cut is likely.
Repo rate cut expected by 25 basis points
However, according to the survey, a majority of 30 out of 57 economists expect a 25 basis point cut in the repo rate to 6.25 per cent in the next monetary policy meeting. The rest do not expect any change in the rate. India is expected to become the fastest growing economy. However, the growth forecast has come down to 6.9 per cent in the current financial year and 6.7 per cent in the next year, from 8.2 per cent in FY 23-24. This is much lower than the RBI’s forecast of 7.2 and 7.1 per cent.
Hurdles in easing monetary policy
The report quoted Pantheon economist Miguel Chanco as saying, “Our baseline outlook is based on the next GDP report due in late November, which is unusually lower than the committee’s forecasts. I don’t think economic growth in India is faster than other major emerging markets, it is a hurdle to 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 per cent until early 2026, leaving little room for the central bank to cut rates.
RBI may cut rates again in February
According to the poll, after the rate cut in December, RBI may cut rates again in February. The US Federal Reserve and the European Central Bank have already cut rates by at least 50 bps. However, it is still unclear whether the RBI will announce its first rate in a long time.
What are Oxford Economics economists saying
The report quoted Oxford Economics economist Alexandra Herman as saying, “Monetary policymakers are emphasizing their vigilance through volatile food prices and consumer basket fundamentals, so it is likely that the bank will wait longer to be convinced inflation dynamics are under control.
He said, “The risk of interest rate cuts in December has increased, especially if the third quarter (July-September) GDP turns down. Still, we believe the RBI is in no immediate hurry and will wait until its first meeting in 2025 to loosen monetary policy settings.”
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