RBI Likely To Hold Interest Rates Amid Inflation Surge; Economists Push Rate Cut Forecast To February

Despite calls from government officials for rate cuts to boost a slowing economy, 62 out of 67 economists polled between November 18 and November 27 expect the RBI to hold rates steady

In October, annual retail inflation breached the RBI's upper tolerance limit of 6 per cent, raising concerns over price stability.

Source : PTI

The Reserve Bank of India (RBI) is expected to maintain its key policy rate at 6.50 per cent during its upcoming December 4-6 meeting, according to a Reuters poll. A sharp rise in inflation, driven by soaring food prices, has led several economists to revise their forecasts for the first rate cut in the cycle from December to February.

In October, annual retail inflation breached the RBI's upper tolerance limit of 6 per cent, raising concerns over price stability. RBI Governor Shaktikanta Das recently cautioned against premature rate cuts, calling them 'risky', even as the central bank shifted its monetary policy stance to 'neutral' in October.

Despite calls from government officials for rate cuts to boost a slowing economy, 62 out of 67 economists polled between November 18 and November 27 expect the RBI to hold rates steady. Only five predict a 25-basis-point cut. This marks a significant change from the previous month’s poll, where a slight majority anticipated a December rate cut.

Inflation Concerns Delay Rate Cut Predictions

Economists attribute the delay in expected rate cuts to rising inflation and uncertainty over food prices. "In the past, the RBI used to often look through vegetable price inflation, but that is not the case anymore," said Pranjul Bhandari, HSBC’s chief India economist, who shifted her forecast to February.

Shilan Shah, deputy chief emerging markets economist at Capital Economics, echoed similar sentiments, noting that Governor Das has been among the more hawkish members of the RBI’s monetary policy committee in recent months. "There is growing evidence that the economy is cooling, and we still think inflation will drop back over the coming months, opening the door for policy easing," he said.

Of 48 economists who contributed to consecutive polls, 21 pushed their forecast for the first rate cut from December to February or later.

Economic Growth Slows

India's economic growth is projected to slow to 6.8 per cent in the current fiscal year and 6.6 per cent in the next, down from over 8 per cent in FY 2023/24. This slowdown, along with persistently high inflation, complicates the RBI's policy decisions.

Economists also flagged risks to growth, with Kaushik Sengupta, an economist, noting that "there could be downside risk to our terminal rate forecast if domestic growth conditions weaken more than expected."

The RBI's decision on December 6 will set the tone for its monetary policy in the months ahead as it navigates the dual challenges of inflation control and economic slowdown.

Ramani Sastri, chairman and MD at Sterling Developers, said, "The repo rate plays a crucial role in determining home loan interest rates and hence, in this context, it is an extremely sensitive factor in the housing market. The RBI should consider reducing rates in the upcoming monetary policy as it will further boost investment in the real estate sector. We definitely hope to see lower interest rates which will provide further impetus to not just real estate and housing demand but across industries and economic growth. As India's economy continues to grow, there is no hesitation among the homebuyers to invest in residential real estate for long-term returns, providing appealing prospects for both first-time buyers and seasoned investors. Also, owing to landmark infrastructure projects by the government, the real estate market has been experiencing tremendous growth and development, gaining investor confidence across all asset classes. Building on the strong sales performance observed throughout the year, the housing market is well-positioned for continued progress. We believe that the sustained demand will further solidify the sector’s upward trajectory well into 2025, cementing the Indian real estate market as a key driver of economic growth."