India’s Central Bank Expected to Cut Interest Rates in December

India’s Central Bank Interest Rate Cut Anticipated

India's central bank, the Reserve Bank of India (RBI), is poised to cut its key policy rate by 25 basis points to 6.25% in December, according to a recent Reuters poll of economists. This decision aims to address the slowing economic growth amid fluctuating inflation rates.

Current Economic Context

In September, inflation unexpectedly rose to 5.49%, but it is forecasted to average 4.9% this quarter, potentially dropping to 4.6% by early 2024. This decline in inflation offers the RBI room to ease its monetary policy, especially since the bank has maintained interest rates at their highest level since early 2019 over the past ten meetings.

Majority Opinion on Rate Cut

In an Oct. 21-29 Reuters poll of 57 economists, 30 anticipate the RBI will lower the repo rate at its meeting from December 4-6. The remaining 27 economists predict no change. Miguel Chanco from Pantheon suggests that manageable inflation will support this decision, noting that upcoming GDP reports could influence the committee’s outlook.

Future Projections and Considerations

While India is projected to remain the fastest-growing major economy, growth is expected to taper to 6.9% this fiscal year and 6.7% next year, down from 8.2% in 2023/24. Analysts indicate that, despite the growth rate, inflation is likely to remain above the RBI's 4% target until early 2026, limiting the scope for further rate cuts.

Conclusion

Overall, while the likelihood of a December rate cut is increasing, experts believe the RBI will proceed cautiously, waiting for clearer signs that inflation dynamics are stable.