RBI MPC Meeting: Brokerages Forecast Central Bank To Delay Rate Cuts Until February

A report from BofA indicated that the RBI is likely to stay on hold despite a weak GDP growth performance. However, the upcoming Monetary Policy Committee (MPC) decision could be more contentious

RBI Governor Shaktikanta Das

Source : PTI

The Reserve Bank of India (RBI) is expected to maintain its repo rate for the eleventh consecutive meeting in December, with brokerages forecasting no rate cut until at least February. However, they anticipate the central bank may take steps to ease liquidity using unconventional policy measures.

A report from BofA indicated that the RBI is likely to stay on hold despite a weak GDP growth performance. However, the upcoming Monetary Policy Committee (MPC) decision could be more contentious than previous meetings, with multiple members potentially voting in favour of a rate cut.

"Still, 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 from its current 4.50 per cent level, if deemed necessary," it said. The report added that this could signal a shift in recent policy guidance, but rate cuts are unlikely until the February MPC meeting, as CPI inflation remains above the tolerance band.

"If CPI comes off sharply, the RBI could contemplate an intermeeting move to cut rates, but the bar for that step remains high," the brokerage said. 

In line with this, Emkay Research highlighted that the significant GDP shortfall has intensified the policy trade-offs, as the economy appears to be in a stagflationary state. "Even as the RBI’s growth/inflation forecast will see significant downward/upward revisions, an immediate rate cut may not be easy for the MPC to justify, especially as their commentary has been assertive on durable disinflation being the primary mandate," the brokerage stated.

The research also anticipates a reversal of the Cash Reserve Ratio (CRR) to the pre-Covid level of 4 per cent, injecting Rs 1.2 lakh crore into the system. This comes at a time when core liquidity is expected to shift into deficit due to unsterilised forex interventions and CIC leakages. "We watch for easing regulatory-lending norms ahead to revitalise the waning credit offtake," it added.