RBI MPC Meet December 2024 Expectations: Will Shaktikanta Das-Led Committee Reduce Rates?

The Reserve Bank of India (RBI) has commenced its Monetary Policy Committee (MPC) meeting today, set to conclude on December 6. All eyes are on the much-anticipated announcement of the repo rate decision, scheduled for 10 AM on Friday. This will be the penultimate meeting for FY2024-25, with the final one slated for February 2025.

Repo Rate Stability Since February 2023
Since February 2023, the RBI has maintained the repo rate at 6.5%, aiming to tackle inflation without stifling economic growth. However, recent data presents a challenging scenario. India's Q2 GDP growth for FY2024-25 slumped to 5.4%. This marks a seven-quarter low, further intensifying calls for monetary easing to spur growth.

Slowing GDP and Rising Inflation
The Q2 economic slowdown, driven by underperforming sectors like manufacturing and mining, has put significant pressure on the MPC. The situation is compounded by elevated inflation, with the Consumer Price Index (CPI) hovering at 6.2%.

Chief Economic Advisor (CEA) V. Anantha Nageswaran acknowledged the challenges, stating, "It’s too early to say if the 6.5% GDP growth aim is in danger. India’s economy remains resilient with plenty of positives to build upon."

RBI MPC Meeting Expectations 
Republic Business spoke to leading economists and strategists to understand their expectations for the December meeting. While a consensus suggests no immediate rate cuts, experts anticipate measures to address systemic liquidity and provide cautious forward guidance.

Ajay Bagga, Executive Chairman, OPC Asset Solutions, predicts no rate cuts due to inflation and global currency dynamics but foresees liquidity measures like Open Market Operations. He said, "This RBI MPC has to address the issue of resurgent inflation along with a slowing economy. By holding real interest rates high for a long period, RBI has reduced aggregate demand. We expect no rate cuts this time around, with the first rate cut likely in April 2025 after observing global trends."

Indranil Pan, Chief Economist, YES BANK, highlights incremental improvement in October data, suggesting growth may stabilize in H2 FY2025. "We are not expecting any rate changes at this meeting. Inflation remains elevated, and the government attributes low growth to heavy rains. October looks to be relatively more healthy,  which necessarily means that we are not really expecting growth to crumble even further. In fact,  if the government actually tends to  start spending, especially on the capital side, we should see a uptick on the growth in the second half compared to the first half,” stated Pan. 

Siddharth Sanyal, Chief Economist, Bandhan Bank, emphasizes the RBI's dilemma between supporting growth and addressing inflation, expecting a dovish tone but no rate cuts yet. "After the sharp drop in Q2 growth to 5.4%, GDP growth in 2024-25 looks set to reach low- to mid-6% only, thereby, missing the MPC’s projection of 7.2% by miles.  On balance, one expects the RBI to keep the repo rate unchanged in December, but with a much more nimble future guidance keeping options open for a rate cut in the coming MPC meeting. However, importantly, one expects the RBI to step up liquidity support for the banking system, which may in turn support the much needed healthy credit growth for the productive sectors of the economy, and thereby supporting growth,” Sanyal said to Republic Business. 

Ankita Pathak, Chief Macro and Global Strategist, Ionic Wealth, argues for a neutral-to-dovish stance, with possible easing measures like restoring the CRR to 4%. Pathak said, "This rate cut decision is far from obvious. A growth shock makes a pressing case for easing, but inflation and currency depreciation concerns persist. Even if the RBI delays rate cuts, we expect a dovish tone and symbolic measures like restoring the CRR to 4%."