RBI to hold the policy rate in October meeting; 25 bps cut likely in December: MC Poll

Of the 15 economists polled by Moneycontrol, just three predicted the possibility of a 25 bps rate cut in the October meeting of the Monetary Policy Committee.

Nomura economist Sonal Varma, PHD Chamber of Commerce and Piramal Group economist Debopam Chaudhuri, pencilled in a 25-bps rate cut for the October policy meeting.

The probability of a rate cut was higher at 75 percent for December and February meets, with most economists pegging the rate at 6 percent by the end of the fiscal.

The forecasts ranged from a low of 5.5 percent to a high of 6.5 percent.

“While RBI is likely to take an independent view on any interest rate action in India, the strong rate cut from Fed may have increased the likelihood of a 25-bps cut from the MPC in Dec’24, provided there are no fresh surprises on the food inflation front," said Suman Chowdhury, chief economist, Acuité Ratings & Research.

Piramal Group’s chief economist, Debopam Chaudhuri, has pencilled in a rate cut for all three upcoming policy meetings this year. Chaudhuri noted that RBI’s repo rate would settle 75 bps below the current 6.5 percent mark.

Aditi Nayar, chief economist, Icra expects a change in the stance in the October meeting, followed by a 25 bps cut in December.

The Reserve Bank of India held the policy rate at 6.5 percent for the ninth consecutive time at its meeting in August. RBI governor Shaktikanta Das had highlighted food inflation concerns.

India’s inflation surprised on the upside in August, rising to 3.65 percent compared with 3.6 percent in the previous month owing to rising food pressures and services inflation.

“India's CPI inflation has eased to almost 5-year low of 3.65% YoY in August, and is expected to remain below or close to 5.0% in the remaining months, except for Sep’24 and Oct’24,” said Ghosh.

Rupee to depreciate further

While the Federal Reserve cut the policy rate for the first time since 2020, the Bank of England decided on September 19 to retain it at 5 percent, with eight members voting to hold the rate.

Economists don’t expect the Fed rate cut to affect the rupee either, as they noted that RBI will act to prevent a significant appreciation.

The MC poll pegged the rupee at Rs 83.85 against the dollar compared with 83.69 range it was trading on September 19.

“RBI’s intervention in the forex market might prevent any significant appreciation of the INR; by the end of the fiscal, an orderly and mild depreciation of the INR to 84.5 can be expected,” said Chowdhury from Acuite Ratings and Research.

India’s forex reserves were at an all-time high of $689.24 billion as of September, buoyed by a $66 billion increase in 2024.