The Reserve Bank of India (RBI) Monetary Policy Committee (MPC) is scheduled to hold a crucial 3-day meeting to review the country’s economic conditions and decide on key monetary policy measures. This meeting, which is set to take place in December 2024, will focus on assessing inflation trends, economic growth prospects, and global financial developments. The outcome of the meeting will have significant implications for interest rates, with the committee considering whether to adjust the repo rate to manage inflation and stimulate growth. The MPC’s decisions will be closely watched by businesses, investors, and policymakers, as they guide the RBI’s approach to balancing price stability with economic recovery in the post-pandemic era.
Mr. Ashwani Dhanawat, Executive Director and Chief Investment Officer, Shriram General Insurance
The Reserve Bank of India (RBI) has maintained its rates since FY24 to manage inflation, supported by robust growth. However, recent Q2FY25 GDP data indicates a slowdown in consumption and investment, which has reduced the policy space. Although growth is anticipated to improve in H2FY25, it is likely to fall short of the RBI’s 7.4% target.
Inflation risks have escalated, with October’s Consumer Price Index (CPI) exceeding the target range. While food inflation remains high, there has been some disinflation in vegetables. Core inflation continues to be subdued, reflecting a negative output gap. Medium-term inflation is expected to ease, with FY26 inflation likely closer to 4%.
Given the weaker GDP data, a rate cut in December would be prudent. This move could provide the necessary stimulus to bolster economic activity. Additionally, liquidity tightness persists, suggesting that continued pressures could arise if outflows persist. A rate cut could help alleviate these pressures and support overall economic stability.
Mr. Ajit Banerjee President & Chief Investment Officer, Shriram Life Insurance Company Ltd.
“The outcome of the next MPC meeting, scheduled between December (4 and 6), is being eagerly awaited to watch which way the MPC is going to take a decision on policy rates against the backdrop of CPI inflation rising beyond MPC’s target inflation band (of 2-6 %) and key heat map indicators signalling economic growth slowing down. RBI’s view on inflation control has been focussed upon taming the inflation in a more durable pattern so that economic growth can be more sustainable and broad-based after the rate cutting cycle starts and inflation is brought under control. The Q2 GDP growth numbers, going to be announced on 29th November, are likely to be less than the Q1 GDP growth numbers of 6.7%.
The deceleration in GDP growth has been primarily driven by slow pace of Central Government and State Government capex in Q1 and Q2 of FY25, which was propelling the GDP growth in the last two financial years. To add to this, we have also seen excessive heat, erratic monsoon and an extended shradh period also playing a spoiltsport. Further, urban consumption levels for essential items started coming down more acutely in H1 of FY25 and rural consumption levels have just started showing green shoots which would help in augmenting the GDP growth to a certain extent in H2 of FY25. The Central government has also started disbursing funds to states for capex and other welfare schemes, which, in turn, should lead to an increase in consumption at the ground level. Therefore, H2 of FY25 would show a slight uptick in GDP growth as compared to H1.
Hence, keeping all of the above in mind, the case in point here is, would RBI start its rate cutting cycle in this MPC? Our in-house view is RBI would main status quo on the policy rates in the coming MPC meeting but would give 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, if the rate cutting is done and guards are held loose, a larger asset bubble can get created. Apart from that, the RBI would also like to see trade and monetary policy with the new government in the US, what would they adopt, and what can be the potential ramifications for India and decide its course of action if felt necessary.”
Mr. Nirav Choksi, CEO and Co-Founder of CredAble
“The RBI’s MPC meeting this week is set to convene at a time of heightened public concerns owing to economic challenges, high inflation, and geopolitical tensions. There is a strong likelihood that the MPC will decide to retain the repo rate at 6.5%. Maintaining the current repo rate will be beneficial to FinTechs that are offering affordable credit to cash-flow-tight sectors like Micro, Small, and Medium Enterprises (MSMEs). By carefully adjusting interest rates and monitoring liquidity, the central bank can strike the right balance between price stability and economic momentum.”
Madan Sabnavis, Chief Economist, Bank of Baroda
“The credit policy has largely been on expected lines. The GDP forecast has been lowered against the background of a low Q2 growth number announced by the NSO last week. Based on forecasts for the next two quarters, a number of around 7% has been projected. The inflation projection has been increased to 4.8% which is mainly due to food inflation being high. The RBI has also raised the flag that core inflation can increase as several manufactured and service industry products have witnessed increase in costs and hence prices. However, given a more benign forecast of 4.5% inflation for Q4, there is a good chance of a reduction in repo rate in the next policy.
The RBI has addressed concerned issues on liquidity by lowering the CRR which will coincide with the advance tax flows and quarter end requirements. This will ensure stable liquidity and bond yields for the month. The RBI has also sounded assuring on the forex side given the reserves which can buffer against any shocks. The market reaction in terms of bond yields and stock indices have been largely neutral to these announcements. We can expect an impact on yields once the CRR funds get released in the market.” – Madan Sabnavis, Chief Economist, Bank of Baroda
Siddhartha Sanyal, Chief Economist and Head of Research, Bandhan Bank
The liquidity support in today’s policy was need of the hour and there were widespread expectation about the same. The CRR cut will inject large quantum of liquidity almost immediately. One feels going ahead, it might be important for RBI to continue monitoring banking system liquidity condition closely and continue to provide support for durable liquidity in order to support growth in credit to the productive sectors of the economy.
The revision in RBI’s growth and inflation forecasts are in line with expectations. The RBI reiterated their confidence about better growth momentum in the second half of the financial year. Importantly, the central bank continues to be more confident about stronger momentum in rural India.
With recent trend in macro data, forecasts and the RBI’s latest guidance, February remains a live meeting as regards further monetary easing, contingent upon softening in inflation dynamics, and better stability on the currency front.