RBI expected to hold rates steady in October Monetary Policy Meeting

RBI MPC: The RBI is likely to keep the interest steady for the tenth time consecutively at its scheduled monetary policy meeting, set to start from 7th October. According to Bank of Baroda’s report, the newly constituted MPC is likely to wait for clearer signals of a trend in inflation numbers before cutting interest rates.

Inflation Trends Influence Decision Making:

Despite having inflation below the RBI 's 4 per cent target for the last two months, the report is such that the policy rate will remain stable for the meeting of the MPC on October 9. Analysts note that the low inflation over the last few months have a "positive base effect," and with the MPC not easing up on its cautious approach, the RBI should thus be alert with volatility in food prices, which might hit their decisions.

Future Opportunity for Rate Cut

The BoB report opines that an opportunity to cut the rate might not come before the December policy as RBI would then be in a position to observe whether inflation has stabilized or not. Food inflation, however, has a positive forecast period with favorable monsoons implying that fresh crops are arriving and would keep the stable food prices supported.

Economic growth continued to be strong

We do expect, though, mixed signals in high-frequency economic indicators, leading us to forecast growth in the Indian economy at 7.3-7.4 per cent in FY25. Broad pressure on manufacturing activity does seem to be fairly mellowed out a bit with the fall in Manufacturing PMI as well as vehicle sales, while the services sector is still expanding. The recent contraction in core sector output and moderating tractor sales are seasonal trends but not enough to dent the overall positive economic outlook.

The MPC is likely to take a chary view for the next two-three months, weighing risks to the inflation trajectory before changing the rates. The RBI 's decision to maintain the policy rate at 6.5 per cent suggests that it still has concerns over inflation, which stands at a level above the target range. All eyes will be on the assessment made by the MPC in its forthcoming October meeting and the direction of its policy thereafter.