RBI Expected to Cut Rates in December

By Anant Chandak

BENGALURU (Reuters) – India's central bank is anticipated to reduce its key policy rate by a quarter point to 6.25% in December, according to a majority of economists in a Reuters poll, aiming to support slowing economic growth.

Inflation unexpectedly rose to 5.49% in September but is expected to moderate to an average of 4.9% this quarter, easing RBI's policy approach.

The central bank has maintained interest rates at their highest since early 2019 during the last 10 meetings.

Governor Shaktikanta Das has noted a favorable balance between inflation and economic growth, with inflation projected to decrease next quarter.

In an Oct. 21-29 Reuters poll, 30 of 57 economists forecasted a 25 basis points cut, while 27 predicted no change in rates. Miguel Chanco from Pantheon anticipates a December cut due to manageable inflation levels.

India is expected to remain the fastest-growing major economy, with growth expected to slow to 6.9% for this fiscal year and 6.7% next year, lower than the RBI’s initial projections.

Despite growth being faster than other major emerging markets, some economists believe this should not hinder monetary policy easing. However, inflation is predicted to remain above the RBI's 4% target until early 2026, limiting further rate cuts.

Poll medians indicate only one more expected rate cut after December, with some economists suggesting a follow-up cut in February. Yet, there's no consensus on a second cut until April-June.

Unlike the U.S. Federal Reserve and the European Central Bank, which have cut rates significantly already, it's uncertain if the MPC is ready for its first cut.

Alexandra Hermann from Oxford Economics stated that monetary policymakers remain cautious due to volatile food prices impacting core inflation, suggesting the RBI might delay easing until its 2025 meeting, unless Q3 GDP numbers are surprisingly low.

(Other stories from the October Reuters global economic poll)