This sentiment reflects a broader expectation of a rate cut later in the year, with 70% predicting a December 2024 reduction. A smaller 10% foresee this happening by February 2025.
“RBI is likely to hold steady for the tenth consecutive MPC, keeping the repo rate at 6.50%. Its outlook on growth and inflation remains positive, reducing the chances of any immediate shift in policy. In recent speeches, Governor Shaktikanta Das has downplayed the influence of US rate cuts on India’s policy while emphasizing domestic growth prospects. The latest RBI bulletin supports this, showing stable growth projections and inflation tracking at 7.2% and 4.5% for FY25, respectively,” BoFA Securities stated in a note.
Given recent food price volatility, we expect the RBI to remain cautious, with a rate cut likely only in December once inflation shows consistent moderation, according to Bank of Baroda economist Aditi Gupta.
Read Here | Why RBI is unlikely to cut interest rates in the October policy
Global Rate Cuts Unlikely to Sway RBI
Nearly 80% of economists believe rate cuts from the US Federal Reserve and China’s People’s Bank (PBOC) won’t significantly influence the RBI’s upcoming decision.
“The Fed’s decision may matter, but it’s not the sole driver for India’s MPC. Domestic factors like inflation, currency trends, and growth will be key in any future shift,” said Radhika Rao, Senior Economist at DBS Bank.
Will RBI Adjust Its Stance?
A key point of debate is whether the RBI will modify its “withdrawal of accommodation” stance.
Half of the poll respondents believe the central bank might switch to a neutral stance in October, while 20% think it will lay the groundwork for future changes. About 30% expect the RBI to stick to its current stance.
“The MPC is likely to wait a few more months to assess inflation risks before cutting rates. We expect both a rate cut and a change in stance in December 2024,” Aditi Gupta from Bank of Baroda noted.
While 50% of economists expect a stance change in the October policy, 40% predict this will happen in December.
“Real rates are elevated, and headline inflation is close to the target. This opens the door for a shift to a neutral stance if the RBI is considering a rate cut,” BoFA added.
Read Here | Will the RBI hold steady or pivot in response to global rate cuts? Economists weigh in
Inflation and Growth Outlook
On inflation, 80% of respondents expect the RBI to maintain its FY25 CPI forecast at 4.5%, though 20% anticipate a slight revision down by 10-20 basis points, citing lower-than-expected inflation in the July-September quarter.
As for growth, economists are split. Half predict the RBI will revise its FY25 GDP forecast to 6.9-7.1%, while the other half believe it will stick to the current 7.2%.
“High-frequency indicators for Q2 FY25 present a mixed picture. While the manufacturing PMI dipped in September, GST e-way bills are rising, and services continue to expand. Despite some seasonal slowdown, India remains on track for robust 7.3-7.4% growth this fiscal,” Bank of Baroda’s Aditi Gupta explained.
New-Look MPC Leans Towards Status Quo
With new members like Professor Ram Singh, Saugata Bhattacharya and Nagesh Kumar joining the MPC, 40% of economists think the reshuffled panel is likely to maintain the status quo in this meeting, although some are expecting Bhattacharya to dissent, pointing to his recent paper in August arguing for a rate cut.
“We note that Shri Saugata Bhattacharya, in an op-ed published in August 2024, suggested that “given the likely future growth-inflation trade-offs”, a rate cut by the MPC “maybe a risk worth taking”6 . The article, released after the August policy meeting, also noted early signs of slowing growth momentum and suggests to us that he will most likely vote for a rate cut next week. Therefore, while we have not seen the public views of the other two external members on policy, we think at least one vote for a rate cut is likely,” Barclays said in a note.
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