Sun Sep 15 16:35:58 UTC 2024: ## RBI Expected to Hold Rates Steady in October, Cut in December: Foreign Banks
Foreign banks anticipate the Reserve Bank of India (RBI) to maintain the benchmark repo rate at 6.5 percent during their upcoming Monetary Policy Committee (MPC) meeting scheduled for October 7-9. While they expect a change in monetary stance next month, the banks predict a rate cut and stance change in December.
The banks’ predictions are based on expectations of falling food and oil prices, which could lead to a decline in headline inflation by December. The August Consumer Price Index (CPI) inflation came in higher than expected at 3.7 percent year-on-year, mainly driven by a smaller than anticipated decline in food prices.
Experts like Pranjul Bhandari of HSBC Global Research and Shreya Sodhani of Barclays believe the RBI will likely hold rates steady in October, waiting for the monsoon season to conclude and its impact on food inflation to be assessed.
However, they see a shift in December, with a rate cut and a change in stance becoming more likely. Factors contributing to this outlook include the expected decline in headline inflation, conducive global monetary conditions, and the possibility of new members joining the MPC in October.
Radhika Rao of DBS Bank Group highlights that the four-year term of the current external MPC members concludes next month, and new members might prefer to maintain the status quo in October before potentially aligning with a broader MPC shift in December.
While the RBI has maintained the repo rate at 6.5 percent since February 2023, the recent CPI data and expectations of easing inflation suggest a potential change in policy direction in the coming months.
First Piper 