The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) began its three-day meeting on Wednesday, 4 December 2024, to assess interest rates. Specialists, economists, and investors from India and other countries are monitoring it closely. Many experts speculate that the Reserve Bank of India (RBI) might maintain key interest rates at their current levels once more during the bi-monthly monetary policy review. Nevertheless, a group of experts is also anticipating a reduction in interest rates. In this scenario, will the RBI’s Monetary Policy Committee reduce interest rates or not? RBI Governor Shaktikanta Das is set to assume his position on Friday, December 6, 2024.
Inflation exceeds the threshold
Analysts believe that the country’s inflation rate has surpassed the maximum threshold established by the government. Simultaneously, the GDP growth statistics for the second quarter of FY 2024-25 were rather disappointing. Considering these two factors, the RBI is unable to alter interest rates.
The gathering of the 6-member Monetary Policy Committee (MPC) chaired by RBI Governor Shaktikant commenced on December 4-6, 2024. The outcome of the meeting will be revealed on December 6.
RBI might lower interest rates in February 2025
It is widely expected that the RBI will soon begin to cut the key interest rate repo rate, but the central bank will have limited choices this time. The rationale behind this is that the retail inflation rate exceeds 6%. The RBI has maintained the repo rate at 6.5% since February 2023. Experts think that some relief may only come in February 2025.
Effect of inflation and worldwide uncertainty on repo rate
According to Madan Sabnavis, Chief Economist at Bank of Baroda, the prevailing uncertainty in the global landscape and its potential effect on inflation might lead to a maintenance of the current repo rate. He stated that the RBI’s forecasts for inflation and GDP are expected to change. This is due to the fact that inflation has, to date, exceeded the RBI’s forecast for the third quarter, while GDP growth in the second quarter has fallen significantly short of expectations.
RBI might reduce its growth projection
ICRA’s Chief Economist Aditi Nair stated that the inflation rate derived from consumer prices exceeded 6% in October 2024. The MPC is anticipated to uphold the current situation in the December 2024 meeting. “We anticipate that the MPC will lower its growth projection for FY25 in the upcoming week.” He mentioned, “If inflation continues to decrease, a rate reduction might occur in February 2025.”
