RBI
RBI's Repo Rate: December Cut Predicted After 6.50% Holding in October

RBI Expected to Cut Interest Rates Amidst Stable Inflation

BENGALURU, Sept 27 (Reuters) – The Reserve Bank of India (RBI) is anticipated to reduce interest rates by a modest 50 basis points over the next six months, as indicated by a majority of economists in a Reuters poll. Economists predict that the RBI is likely to wait until December to initiate this cut rather than acting in October.

Inflation remained below the RBI’s medium-term target of 4.0% for a second consecutive month in August. While a slight rise in inflation is expected in the coming months, it has stayed within the 2%-6% comfort zone for nearly a year and is anticipated to remain there through mid-2026.

The poll results show that most economists believe the RBI will not rush to follow the U.S. Federal Reserve’s recent 50 basis-point cut, attributing this to a robust domestic economy and a stable currency. The median forecasts for the repo rate have remained unchanged in Reuters polls conducted since April. In a recent poll conducted from September 17-26, over 80% of economists (63 of 76) predicted that the RBI would hold the repo rate at 6.50% during its meeting scheduled for October 7-9. Twelve economists forecast a 25 basis-point cut, while one expected a reduction to 6.15%.

Since February 2023, the RBI has maintained a steady repo rate, concentrating on keeping the rupee within a tight trading range through direct interventions in the foreign exchange market. Suman Chowdhury, an economist at Acuite Ratings, suggested, “The reason why the RBI will not be in a hurry, unlike the Fed who had to go for a cut, is because the Indian economy is still on a very strong wicket.” He noted that food inflation is showing signs of making a better showing in the coming months compared to last year, indicating a possibility for rate cuts in December.

RBI Governor Shaktikanta Das recently emphasized the importance of not being swayed by temporary dips in inflation, leading many to believe that additional readings of favorable inflation data will be necessary for the RBI to feel confident in reducing rates. Some economists have refrained from providing rate estimates beyond the upcoming meeting, citing uncertainty surrounding the appointment of three new external members to the Monetary Policy Committee as the terms for the current members are set to expire on October 4.

Median forecasts have anticipated a quarter-point cut in the next quarter, with nearly 60% (41 of 71) of economists expecting rates to drop to 6.25%. However, close to a third (22) predict the rates will remain at 6.50%, while others (8) expect rates to be at 6.15% or lower. More than half of those who gave year-end forecasts indicated that the central bank would likely wait until December to implement a cut, despite several major central banks already easing their monetary policies. Furthermore, the RBI is expected to implement another 25 basis-point cut in February, bringing the repo rate to 6.00%, according to median forecasts. This approach is significantly slower than the Fed, which is projected to cut rates by another 50 basis points in the next three months and by 100 basis points in 2025.

Despite the recent decrease, the poll forecasts an increase in Indian inflation, averaging 4.5% for this fiscal year and 4.3% for the next. Asia’s third-largest economy is projected to grow by 6.9% this fiscal year, a decrease from the 8.2% growth rate observed in FY 2023-24, yet it will still remain the fastest-growing major economy.

Radhika Goyal is Author of Taxconcept Gurugram head office, for deeply reported tax, gst and income tax articles on issues that matter. He splits her time between New Delhi and Bengaluru, and has worked as a reporter, a podcaster and an editor for publications across India.