RBI to weigh growth slowdown, inflation at its MPC meeting this December
New Delhi, Dec 2, 2024
A survey conducted by Business Standard revealed that majority respondents believed that the RBI might revise its growth and inflation projections for the financial year
Despite GDP growth declining to 5.4 per cent in the July–September quarter, the Reserve Bank of India’s (RBI) six-member monetary policy committee (MPC) is expected to maintain the current repo rate during its review meeting this week, according to a Business Standard survey of 10 respondents.
Among the respondents, only IDFC First Bank forecast a 25-basis-point (bps) reduction in the repo rate. Since May 2022, the RBI has raised the repo rate by 250 bps to 6.5 per cent as of February 2023 and has held it steady across the last 10 policy reviews.
The latest GDP figures, published on Friday (November 29), showed that growth for Q2 FY25 slowed to 5.4 per cent year-on-year, down from 6.7 per cent in Q1.
Most survey participants suggested that the RBI might revise its growth and inflation projections for the financial year. The poll indicated that the central bank could lower its growth estimate from the current 7.2 per cent and increase its inflation forecast, currently at 4.5 per cent. While a rate cut appears unlikely, liquidity management is expected to be a key focus in the December MPC review, scheduled for release on Friday (December 6).
HDFC report expects rebound in rural demand
A report by HDFC Bank, India’s largest private sector lender, echoed the sentiment that the central bank would likely maintain the repo rate at 6.5 per cent in its final MPC meeting of the year.
HDFC Bank’s analysis highlighted a potential rebound in rural demand during the fiscal year’s second half, driven by robust agricultural output, government scheme disbursements, and increased public spending. These factors could collectively boost economic activity.
Meanwhile, a Reuters poll indicated that the RBI is likely to maintain the repo rate during its December 6 meeting, as rising consumer inflation has led many economists to postpone expectations of a rate cut to February. Retail inflation breached the RBI’s tolerance ceiling of 6 per cent in October, primarily due to surging food prices.
RBI Governor Shaktikanta Das, whose tenure is set to end on December 10 but is widely expected to be extended, has cautioned against premature rate cuts, warning of associated risks. This follows the central bank’s October decision to shift its monetary policy stance to “neutral” amid calls from key government officials to lower rates and support the slowing economy.
The Reuters poll, conducted between November 18 and 27, found that 62 of 67 economists predicted the RBI would hold the repo rate at 6.5 per cent during the December meeting, with only five forecasting a 25-basis-point cut. This marks a shift from an earlier poll, where a slim majority anticipated a reduction to 6.25 per cent in December.
Union Minister wants RBI to cut rates
Last month, Union Commerce Minister Piyush Goyal urged the RBI to consider lowering interest rates, questioning the emphasis on food inflation in monetary policy decisions. Speaking at the CNBC-TV18 Global Leadership Summit, he described basing rate decisions on volatile food prices as a flawed approach.
He clarified that these views were personal and did not represent the government’s official stance. Goyal also expressed optimism that inflationary pressures would ease by December, noting that inflation under the Modi administration had been the lowest since independence.
What happened in RBI’s previous MPC meeting?
In the previous MPC meeting held on October 9, RBI Governor Shaktikanta Das announced that the repo rate would remain at 6.5 per cent, marking the 10th consecutive review with no changes. The repo rate, raised to 6.5 per cent in February 2023, is the rate at which the RBI lends to commercial banks. However, the RBI’s shift to a “neutral” stance signalled the possibility of rate cuts in future policy decisions.
[The Business Standard]
