RBI likely to maintain status quo on interest rates in October 9 MPC meeting: Bank of Baroda report

India's central bank, the Reserve Bank of India (RBI), is expected to hold the status quo on both the key benchmark interest rates and its stance for the tenth successive time in the October monetary policy meeting, news agency ANI reported on Wednesday, October 2, citing a Bank of Baroda (BoB) research report.

“The newly constituted MPC is likely to await more clarity on the evolution of the inflation trajectory before embarking on a monetary easing path. While the near-term outlook on inflation is positive, the MPC's decision is likely to be guided by the long-term outlook of inflation and growth, as has been explicitly stated by the Governor,” according to the report.

With inflation falling below the RBI's target of 4 per cent for the last two months, the agency report predicts that interest rates will not change at the upcoming MPC meeting on October 7.

According to the analysis, the fall in inflation was due to a “positive base effect." The MPC committee will announce its decisions on the rate on October 9.

The volatility in food prices is likely to be taken cautiously by the RBI. A rate cut at this stage is unlikely. According to the report, an opportunity for an interest rate cut can only be seen in the December policy when RBI is sure that inflation has moderated on a durable basis.

The outlook on food inflation is positive, supported by a normal monsoon, a favourable outlook on food inflation is seen, and food prices are estimated to remain stable, the news agency reported.

Core inflation stable

According to the agency's analysis, the arrival of fresh crops should help ease the concern about high vegetable prices. The core inflation is also stable and as expected by the research firm, it will stay around or below 4 per cent, suggesting that the broader inflationary pressure in the economy is under control, as per the report.

Unseasonal rainfall during monsoon withdrawal can damage crops and cause food prices to surge. “As such, India's macro fundamentals remain robust, and the economy is likely to register growth of 7.3-7.4 per cent in FY25.”

According to the BoB report cited by the agency, the monetary policy committee is expected to wait for another few months to assess the risks to the inflation trajectory before cutting rates.

The manufacturing PMI fell to 56.5 in September 2024 from 57.5 in August 2024. Vehicle sales have moderated, with PV sales declining by 4.5 per cent in August 2024.

Tractor sales have also moderated sharply, and core sector output contracted for the first time since February 2021. However, according to the report, Goods and Service Tax e-way bills have seen steady growth.

The weakness in domestic activity can be attributed to seasonal factors, as activity is sluggish during the monsoon. Despite this, India is still on track to witness a 7.3-7.4 per cent in the financial year 2025.

The Reserve Bank of India kept the key benchmark interest rate, repo rate, unchanged at 6.5 per cent amid concerns over inflation, which remained above the target range.

(With inputs from ANI)