Narrow Majority Of Economists Predict RBI Will Cut Rates To 6.25% In December: Poll

Poll medians indicate that the RBI is likely to reduce rates only once more after December. Among those anticipating a move in December, a significant majority also predict a follow-up cut in February

The Reserve Bank of India ((RBI) is expected to reduce its key policy rate by a quarter point to 6.25 per cent in December to support slowing economic growth, according to a slim majority of economists surveyed in a Reuters poll. These experts also anticipate that inflation will moderate in the near term.

After an unexpected spike to 5.49 per cent in September, inflation is forecasted to average 4.9 per cent this quarter and drop to 4.6 per cent in January-March, potentially giving the RBI the flexibility to ease its policy stance.

The central bank has maintained interest rates at their highest level since early 2019 for the past ten meetings.

Miguel Chanco, an economist at Pantheon, anticipates a rate cut from the Monetary Policy Committee in December, citing that inflation remains "manageable." "Our baseline view is predicated on the next GDP report due in late November falling well short of the committee's unusually rosy forecasts," said Chanco. 

Although India is projected to maintain its status as the fastest-growing major economy, growth is expected to slow slightly to 6.9 per cent this fiscal year and 6.7 per cent in the following year, down from 8.2 per cent in fiscal 2023/24. These forecasts are below the Reserve Bank of India's projections of 7.2 per cent and 7.1 per cent, respectively.

"I don't think the fact economic growth in India is faster than most major emerging markets is a barrier to some monetary policy easing...It's one of the least-developed major emerging markets on a per capita basis. What matters for policy is the direction of travel and it's clear from most economic indicators activity is losing momentum,” Chanco said.

However, with inflation expected to remain above the central bank's medium-term target of 4 per cent until early 2026, the RBI has limited scope to implement further rate cuts.

Poll medians indicate that the RBI is likely to reduce rates only once more after December. Among those anticipating a move in December, a significant majority also predict a follow-up cut in February.

However, there is no consensus for a second 25 basis points cut until the April-June period, and this outlook is based on a smaller sample of economists.

Other central banks, such as the US Federal Reserve and the European Central Bank, have already implemented rate cuts of at least 50 basis points. In contrast, India's Monetary Policy Committee (MPC) still appears hesitant to deliver its first cut.

"Monetary policymakers have been stressing their vigilance over volatile food prices and their feed-through to the core elements of the consumer basket, so it is likely the bank will wait for longer to rest assured inflation dynamics are under control," said Alexandra Hermann, economist at Oxford Economics, reported Reuters.

She added, "The risk for a rate cut to be delivered as soon as December has increased, especially if Q3 (July-September) GDP growth numbers surprise to the downside. Still, we believe the RBI is in no immediate hurry and will wait until its first meeting in 2025 to loosen monetary policy settings.”