A revision in the projection of consumer price index (CPI)-based inflation and economic growth rate in the December monetary policy review is likely to lower the chances of a rate cut in the next MPC meet in February, experts said.
“The RBI forecasts suggest improvement in economic momentum with higher CPI forecast for the full year along with a CRR cut intended to ease liquidity and thus lower the money market rates. The need for a February 2025 cut is lower and expect the RBI to enter the easing cycle from April 2025,” said Sujan Hajra, chief economist and executive director at Anand Rathi Shares and Stock Brokers.
Madhavankutty G, group chief economist at Manappuram Finance, doesn't expect a rate cut this fiscal as growth concerns have been adequately addressed in the policy.
The central bank has revised the GDP growth forecast down 60 basis points for FY2024-25 and mentioned that geo-political uncertainties, volatility in international commodity prices, and geo-economic fragmentation continue to pose risks to the economic growth outlook.
GDP growth for the current financial year have been reduced to 6.6 percent from 7.2 percent earlier. The growth rate for Q3 is pegged at 6.8 percent from 7.4 percent, for Q4, at 7.2 percent from 7.4 percent, for Q1 of FY26, at 6.9 percent from 7.3 percent earlier and for Q2FY26, at 7.3 percent.
The RBI also revised their inflation projections upwards by 30 bps for the current financial year. The central bank projects the CPI inflation at 4.8 percent for FY25, from 4.5 percent earlier. In Q3, the RBI increased projections to 5.7 percent from 4.8 percent earlier, 4.5 percent in Q4 from 4.2 percent earlier, and 4.6 percent in Q1FY26 from 4.3 percent earlier.
However, a few set of experts are still betting for a rate cut in the next monetary policy.
Aditi Gupta, economist at Bank of Baroda, said the RBI will cut rates in February 2025 as the RBI governor remained positive on the inflation and growth dynamics. “A lot will depend on the inflation trajectory, particularly since food prices have tended to be volatile in the recent times.”
Today, the central bank kept the key policy rates unchanged at 6.5 percent as inflation stayed above the central bank’s comfort zone and a slowdown in economic growth forced it to revise its forecast downward.
At the same time, the Monetary Policy Committee (MPC) lowered the cash reserve ratio (CRR) by 50 basis points (bps) to support economic activity, with the revision mapped out in two tranches of 25 bps each for December 14 and 28.
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