RBI Policy: MPC meeting begins today; will the central bank cut the repo rate? Experts weigh in | Stock Market News

Against the backdrop of sticky inflation and slowing growth, the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) has begun its three-day meeting on Wednesday, December 4, to decide on interest rates and its policy stance. RBI Governor Shaktikanta Das will announce the MPC’s policy decision on Friday, December 6.

Coming at a 14-month high, India’s Consumer Price Index (CPI)-based inflation for October stood at 6.21 per cent, exceeding the RBI’s tolerance band of 4-6 per cent. The CPI data for November is set to be released on December 12.

Meanwhile, the Q2FY25 GDP print stood at 5.4 per cent, the lowest in nearly two years and marking the third consecutive quarter of decline.

The evolving inflation-growth dynamics have put the RBI in a tight spot, and all eyes are on India’s central bank’s policy response to elevated inflation and slowing growth.

Experts believe that at this critical juncture, the RBI cannot overlook the renewed strength of the dollar following Donald Trump’s victory in the US election. The rupee has plunged to a record low against the dollar, compounded by persistent geopolitical tensions and ongoing concerns over climate-related shocks.

Madhavi Arora, Lead Economist at Emkay Global Financial Services, underscored even as the RBI’s growth and inflation forecast will see significant downward or upward revisions, an immediate rate cut may not be easy for the MPC to justify, especially as they have been focussing on durable disinflation.

However, as economic growth is waning, the central bank will be under pressure to reduce rates conventionally.

Arora believes the timing and window of rate cuts are tricky and small amid fluid global dynamics. At the same time, the RBI may also want to weigh the forex cost of rate cuts.

“Non-conventional policy tools like liquidity easing could act as a good balancing act, with a CRR reversal to pre-Covid 4 per cent level, implying an infusion of ₹1.2 lakh crore at a time when core liquidity may steadily move to a deficit ahead with unsterilized forex intervention and CIC leakages. We watch for easing regulatory-lending norms ahead to revitalize the waning credit offtake,” said Arora.

Mint gathered insights from top experts on whether the RBI might cut rates on Friday. Take a look:

Rahul Bajoria, Head of India and ASEAN Economic Research at BofA Securities

Despite seeing a very weak GDP growth print, the RBI appears set to be on hold. 

The pivot to a neutral stance in October does provide the space to take more growth-supportive actions, and this could come in the form of forward guidance on rate cuts, liquidity injection to manage front-end rates, and even contemplate a reduction in cash reserve ratio (CRR) from its current 4.50 per cent level, if deemed necessary. 

This would also mean a shift in recent policy guidance is on the cards, but rate cuts appear only likely in February MPC, given that CPI inflation remains above the tolerance band. 

If CPI comes off sharply, the RBI could contemplate an inter-meeting move to cut rates, but the bar for that step remains high.

Taimur Baig, Chief Economist and Radhika Rao, Senior Economist, DBS Bank

We expect the official growth projection at 7.2 per cent to be lowered by 30-40bp and inflation to be raised by 10-20bp from the current 4.5 per cent.

Ahead of the growth undershoot, the MPC had maintained a cautious posture, highlighting limited room to cut rates in the face of above-target inflation.

With inflation running above target but expected to moderate going forward, we expect a dovish hold from the MPC, with more members voting for a cut compared to the 5:1 ratio at the last review.

A rate cut is more likely at the February 2025 meeting. Still, there is a small probability that the recent GDP miss might have convinced the MPC to shift to a growth-supportive stance and bring forward the rate cut to December.

Teresa John, CFA, Deputy Head of Research & Economist, Nirmal Bang Institutional Equities

We believe a shift in the policy narrative of the MPC is inevitable, starting with acknowledging the slow growth and the fact that counter-cyclical support is required.

We are not completely ruling out a rate cut in the December MPC meeting, yet our base case remains a rate cut in February 2025 as inflation moderates closer to 5 per cent.

While the RBI is likely to commit to liquidity support as necessary, it may refrain from a blanket cut in the cash reserve ratio (CRR) given some macro-prudential tightening measures. A targeted CRR cut for lending to secured segments may be seen as more appropriate.

Deepak Agrawal, CIO-Debt, Kotak Mahindra AMC

The RBI’s Monetary Policy Committee faces a delicate balancing act.

With GDP growth slowing more than expected and inflation showing mixed signals, their upcoming decision is likely to prioritize careful adjustments to address immediate challenges while maintaining a focus on long-term stability.

Given the tight liquidity conditions, they may choose measures to ease liquidity and/or cut rates, which could serve as a strong signal to the market.

Ajit Banerjee, President & Chief Investment Officer, Shriram Life Insurance Company

RBI would maintain the status quo on the policy rates in the coming MPC meeting but would give a clear indication in the governor’s post-policy statement on the path the MPC would like to take on the policy rates going forward.

We are also seeing huge stress on the MFI segment and the financially less endowed urban population, who are highly leveraged now. At this stage, a larger asset bubble can be created if the rate cutting is done and guards are held loose.

Apart from that, the RBI would also like to see trade and monetary policy with the new government in the US, what they would adopt, and what the potential ramifications for India are and decide its course of action if necessary.

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