The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) is expected to maintain the current repo rate of 6.5% at its upcoming meeting from October 7-9, 2024, according to major analysts. This would mark the tenth consecutive meeting where the RBI has kept rates steady, despite some variations in expert predictions for future rate cuts later in the fiscal year.
Brokerage expectations
SBI Research
SBI Research suggests that the RBI may disassociate itself from interest rate developments in the U.S. and take an independent approach to domestic rates, based on evolving conditions in India. While Consumer Price Index (CPI) inflation may rise temporarily due to an unfavorable base effect in September, for the full year FY25, inflation is expected to average around 4.5%-4.6%, well within the RBI’s 4-6% target range. The first rate cut, according to SBI Research, is likely in December 2024 or February 2025. However, the firm cautions that geopolitical risks and slowing growth could lead to a more cautious approach in the RBI’s communication.
Nomura
Nomura forecasts a more immediate move, predicting a 25 basis points (bp) rate cut at the October meeting, although it acknowledges that this is a close call. The firm attributes a 55% probability to a rate cut and 45% to a pause. Nomura expects slight downward revisions in the RBI’s FY25 projections for both CPI inflation (from 4.5% to 4.4%) and GDP growth (from 7.2% to 7%). Nomura believes that inflation is now aligned with the RBI’s 4% target and growth signals are softening, giving the central bank room to recalibrate its policy without stoking inflation.
Barclays India
Barclays India is of the view that the RBI will keep policy rates and its stance unchanged, with at least one dissenting vote from new external members of the MPC. Despite a few high-frequency indicators showing a moderation in activity, Barclays expects the RBI to maintain a focus on inflation, particularly food prices. The firm anticipates that by December, the RBI will have sufficient data to suggest easing inflationary pressures and moderating growth, which could open the door to a rate cut at that time.
BofA Securities shares a similar outlook, expecting the RBI to hold rates in October, while projecting potential changes in the coming months. The firm highlights that the RBI remains optimistic about both growth and inflation, with FY25 projections for GDP growth and inflation standing at 7.2% and 4.5%, respectively. However, BofA believes that the RBI may signal a shift towards data dependence and a potential change in stance to ‘neutral’ as growth risks appear tilted to the downside.
New MPC members and potential shifts
This October meeting will be the first for the three newly appointed external MPC members—Prof. Ram Singh, Shri Saugata Bhattacharya, and Dr. Nagesh Kumar—who are expected to influence future decisions. Barclays and BofA Securities both highlight that these new members do not have a strong bias yet, which could result in a more data-driven approach to future policy.
Outlook for future rate cuts
While the consensus for the October meeting is to keep rates unchanged, most analysts are projecting rate cuts in the near future, with timelines ranging from December 2024 to early 2025. BofA Securities expects a total repo rate reduction of 100 basis points by December 2025, beginning with the first cut in December 2024.
The RBI is likely to maintain a balanced approach, monitoring both inflation and growth indicators closely. While inflation appears to be within control, softening growth signals and global economic uncertainties may prompt a gradual easing of monetary policy in the months ahead.
