In a CNBC-TV18 poll, about 70% of ten leading economists predicted a December rate cut.
Also Read: RBI MPC October 2024 decision on report rate, policy stance
These expectations are driven by the belief that global interest rates are beginning to shift, offering the RBI more flexibility to address growth uncertainties and inflation risks.
Kaushik Das, Chief Economist at Deutsche Bank, noted that while the RBI is careful not to signal an immediate rate cut, it has left the door open for potential action if conditions shift in the coming months.
“The governor is trying hard to signal to the market that this (change in stance to neutral) does not necessarily mean that the next policy is a rate cut, but they have kept the optionality open. If things change quite drastically over the next few months, then why not go for a rate cut in December rather than February, it does not make a difference,” Das said discussing RBI Governor Shaktikanta Das’ October policy statement.
Das explained that while inflation might remain elevated in the short term due to base effects, it is expected to ease toward the central bank’s target of 4%, which could justify a shift in policy.
Also Read: RBI Guv reiterates GDP growth target for FY25
He expects a 25-basis-point cut in December, with an additional 50 basis points likely in 2025.
Upasna Bhardwaj, Chief Economist at Kotak Mahindra Bank also thinks a December rate cut is still on the radar but “global conditions, how they fare and its implications on India, the domestic inflation, all of this is going to be important to watch out for.”
RBI Monetary Policy Report October 2024 projections
By the time the RBI MPC meets in December, they will get early indications on how the festive season has panned out and understand that there are downside risks emanating for the 7.2% GDP growth as well for the full year. “So, they would have to account for all of that and the chances for the December rate cut still remain,” she said.
Kanika Pasricha, Chief Economic Advisor at Union Bank of India, is more cautious on the timing of the rate cut, placing the chances at 50:50 for December.
Pasricha outlined three key factors to monitor regarding inflation: food prices, which are expected to ease by the fourth quarter, geopolitical risks, and China’s impact on global inflation and metal prices.
She also highlighted the importance of high-frequency growth indicators, which are beginning to show signs of a slowdown, aligning her views with those of Upasna Bhardwaj from Kotak Mahindra Bank.
Also Read: RBI Guv’s warning to NBFCs
“The governor has chosen to keep overall growth numbers unchanged. So, extent of downside to growth numbers, our forecast is 7%. So how much more does it fall below 7% will also be a key deciding factor whether it will be December or February,” Pasricha noted.
For now, she expects the cut to occur in February, while closely monitoring the economic indicators.
Shobhit Mehrotra, Head of Fixed Income at HDFC AMC, believes that much of the movement in the 10-year bond yield has already priced in a shallow rate cut cycle.
If India’s second-quarter GDP growth disappoints when the figures are released on November 30, the RBI may kickstart the rate cut cycle in December, he said.
Other economists are looking toward early 2025 for monetary easing.
Ashwini Kumar Tewari, MD of SBI, believes a rate cut is more likely in the January-March quarter, rather than in December.
“Our house view continues to be the quarter one which is January to March of the next year, not immediately. But as has been just said that there is the flexibility now the RBI has so that they can continue to monitor and with time they will cut,” Tewari explained.
He highlighted that favourable international factors, such as rate cuts by the US Federal Reserve, alongside India’s strong growth and easing inflation, support the potential for a rate cut early next year.