The Reserve Bank of India (RBI) is set to hold its Monetary Policy Committee meeting from October 7 to 9. Led by Governor Shaktikanta Das, this meeting will be pivotal as it decides the future of interest rates in the country.

No Changes Anticipated This Time
Following the previous meeting in August, where the committee opted to maintain interest rates for the ninth consecutive time, analysts predict that no changes will be made in October either. The outcomes of the meeting will be disclosed by Governor Das on October 9. Typically, these meetings occur every two months, with the last significant rate change happening in February 2023, when rates were raised by 0.25% to 6.5%.

Global Context: U.S. Federal Reserve Cuts Rates
On September 18, the U.S. Federal Reserve made headlines by cutting interest rates by 0.5%, marking its first reduction in four years. The new range for rates is now between 4.75% and 5.25%. As the world’s largest economy, decisions made by the U.S. central bank have widespread implications for global markets.

A Look Back: RBI’s Rate Adjustments Since 2020
Since the onset of the pandemic, the RBI has made several adjustments. In March 2020, it cut rates twice by a total of 0.40%. Following that, the RBI raised rates five times over ten meetings, kept them unchanged on four occasions, and reduced them once in August 2022 by 0.50%. Before the pandemic, the repo rate stood at 5.15%.

Future Outlook: Possible Rate Cuts by 2025
Dr. V.K. Vijayakumar, Chief Investment Strategist at Geojit Financial Services, forecasts a potential rate cut of 0.50% in India by March 2025. The RBI has maintained the current repo rate of 6.50% since February 8, 2023. Vijay Bharadia, founder of Wolffort Financial Services, notes that any rate cut would encourage RBI and other global central banks to adopt a softer monetary stance.

The Role of Policy Rates in Controlling Inflation
Central banks use policy rates as a powerful tool against inflation. When inflation spikes, central banks typically raise policy rates to reduce money flow in the economy. Higher rates increase borrowing costs for banks, which in turn pass on these costs to consumers, curbing demand and reducing inflation.

Conversely, during economic downturns, lowering policy rates can stimulate growth by making loans cheaper, thereby increasing money flow and aiding recovery. As the RBI navigates these complex dynamics, the upcoming meeting could set the stage for significant economic shifts in India.