RBI MPC verdict today: Repo rate to GDP, inflation forecasts— here are 5 key indicators to watch
- RBI MPC verdict today: Some economists expect a CRR reduction to benefit banks, while others anticipate a status quo in the December meeting and an interest rate cut in February.
RBI MPC Meeting: Reserve Bank of India (RBI) Governor Shaktikanta Das will unveil the fifth monetary policy of the current financial year 2024-25 (FY25) on Friday, December 6, after a two-day review meeting amid recent worrying prints of headline inflation and gross domestic product (GDP).
The review by the six-member Monetary Policy Committee (MPC) led by Das will provide a framework for the central bank's policy in 2025. The central bank's rate-setting panel will adopt the policy stance as a base for the remainder of the current fiscal as it seeks to strike a fine balance between sustaining growth and keeping retail inflation under the four per cent target.
For the December meeting, D-Street experts are divided on whether the rate-setting panel will maintain its stance on the key interest rates or go for its first policy reduction since February 2023. While some expect a CRR reduction to benefit banks, others anticipate a status quo this time and a rate cut in February.
Here are the key indicators to watch out for during the December 2024 MPC:
1.Repo Rate
In its last policy meeting, the MPC kept the benchmark repo rate unchanged at 6.5 per cent for the tenth straight meeting. However, the MPC changed the monetary policy stance to ‘neutral’ from ‘withdrawal of accommodation’ in the October meeting.
Most economists expect a status quo on the key interest rates until the retail inflation consistently reaches the RBI's target level. According to Aditi Nayar, Chief Economist and Head - Research & Outreach, ICRA Ltd, in light of the recent spike in inflation, a status quo is anticipated from the MPC.
“However, with the GDP growth print sharply undershooting the MPC's expectations, a February 2025 rate cut may be on the table if the next two inflation prints recede,” said Nayar.
“With the current slowdown, we continue to expect RBI to deliver its first rate cut in February amidst a moderating inflation scenario,” said Suman Chowdhury, Executive Director & Chief Economist Acuité Ratings,
Gaurav Garg, Research Analyst at Lemonn Market Desk, said, “The market is expecting a rate cut, driving momentum in PSU banks, private banks, and financial services in recent days amid speculation.”
“However, any deviation from these expectations could potentially disrupt the sector's momentum. The RBI may choose to delay rate cuts to ensure inflation aligns more comfortably with its target levels, prioritizing economic stability over immediate market sentiments,” he added.
2.Inflation
In October, India’s retail inflation accelerated to a 14-month high of 6.21 per cent year-on-year (YoY). The increase was driven by food inflation which moved to a 15-month high of 10.9 per cent YoY. Within food inflation, vegetable prices were running at a 57-month high of 42 per cent YoY, driven by tomato (161 per cent YoY), potato (65 per cent YoY) and onion (52 per cent YoY).
According to economists, the MPC would have to revise the Q3 inflation forecast from 4.8 per cent to 5.5 per cent in the December meeting and retain Q4 inflation around 4.2 per cent. It would also have to revise the FY25 inflation estimate higher from 4.5 per cent.
3.Growth
India’s GDP growth in the July-September quarter of the current fiscal (Q2FY25) was below D-Street estimates at a near two-year low of 5.4 per cent YoY, the lowest in seven quarters. The slowdown was led by a moderation in investment spending and subdued growth in the manufacturing and mining sectors. According to ICICI Bank research, the central bank would have to revise its FY25 growth forecast lower from 7.2 per cent YoY.
4.Liquidity
According to Mandar Pitale, Head Treasury, SBM Bank India, against the backdrop of shallow systemic liquidity, a significant drop in growth, lower government cash balances, and RBI interventions in terms of offloading dollars in the market to maintain orderly conditions in USD INR movement, MPC may consider infusing durable liquidity by a phased reduction in CRR.
The reduction could be nearly 25 basis points in two phases till the next MPC meeting. "This could support growth through liquidity injection rather than considering an interest rate cut. MPC may also consider infusing durable liquidity through OMO purchases," said Pitale.
5.Post-policy rate cut guidance
According to Ajit Banerjee, President and Chief Investment Officer of Shriram Life Insurance Company Ltd, the central bank will likely maintain the status quo on policy rates in this meeting. Still, RBI Governor Shaktikanta Das' post-policy statement will clearly indicate the path the MPC would like to take on policy rates going forward.
Disclaimer: The views and recommendations provided in this analysis are those of individual analysts or broking companies, and not Mint. We strongly advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and individual circumstances may vary.
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Business NewsEconomyRBI MPC verdict today: Repo rate to GDP, inflation forecasts— here are 5 key indicators to watch
First Published:6 Dec 2024, 06:13 AM IST
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