Experts Predict Significant Rate Cuts Amid Improved Inflation Trends

The Reserve Bank of India’s Monetary Policy Committee (MPC) is poised to initiate an easing cycle starting in December 2024, according to a recent report from UBS. As domestic inflation forecasts show promising signs, this shift could mark a pivotal change in India’s monetary landscape.

Improving Inflation Forecasts Signal Rate Cuts

With expectations that inflation will be 30 basis points lower than the RBI’s forecast of 4.5% for FY25, analysts predict a substantial reduction in the repo rate. The report anticipates a decrease of 75 basis points in this cycle, a notable revision from an earlier forecast of 50 basis points.

Global Trends Influence Domestic Decisions

The backdrop of global monetary easing, highlighted by the U.S. Federal Reserve’s recent 50 basis point rate cut, has set the stage for potential adjustments in India’s interest rates. Economic Affairs Secretary noted that while global trends are influential, the RBI’s decisions will ultimately reflect the specific needs of the Indian economy.

Upcoming MPC Meeting to Address Rate Decisions

The MPC, led by RBI Governor Shaktikanta Das, is scheduled to convene from October 7-9 to deliberate on interest rates. This meeting comes at a time when retail inflation, a critical factor in MPC’s decision-making, has seen a slight uptick, rising to 3.65% in August from 3.54% in July.

Food Inflation Remains a Concern

Despite overall inflation being below the RBI’s target of 4%, food inflation continues to pose challenges, recorded at 5.66% in August. This persistent pressure on food prices played a significant role in the RBI’s decision to maintain the repo rate at 6.5% during its August review—the ninth consecutive meeting without a change.

Long-Term Outlook Guides Monetary Policy

During previous discussions, the RBI Governor emphasized that decisions regarding interest rate moderation will be grounded in a long-term inflation trajectory rather than short-term data fluctuations. As the upcoming MPC meeting approaches, stakeholders will closely monitor these developments for indications of future monetary policy direction.