RBI MPC Meeting: How Economists Weigh In on RBI MPC Decision? All Details

The Reserve Bank of India’s ( RBI ) decision to keep the policy repo rate unchanged at 6.5 per cent and its continued neutral monetary policy stance have sparked reactions from various economists. 

RBI's Neutral Stance Faces Growth-Inflation Dilemma
Shishir Baijal, Chairman and Managing Director of Knight Frank India, commented on the RBI's decision to maintain its pause on interest rates. He highlighted the central bank’s struggle with multiple economic pressures, including a depreciating rupee, softening bond yields, persistent inflation, and a slowdown in growth. While Baijal acknowledged that the growth deceleration is not yet alarming, he noted that it provides the RBI with sufficient room to leave interest rates unchanged. "At this point, a rate cut would be more beneficial for consumers, including home buyers, as borrowing costs remain high despite the unchanged repo rate," Baijal said. He further noted that the slowdown in home loan growth and decreased consumption among lower-income groups are evident, particularly in the affordable housing sector.

Liquidity Boost Through CRR Cut to Support Growth
Suman Chowdhury, Executive Director and Chief Economist at Acuité Ratings, addressed the RBI's broader strategy of balancing inflation control with growth support. Chowdhury pointed to the 50 basis point reduction in the Cash Reserve Ratio (CRR) as a key move to ease short-term interest rates and improve system liquidity. "This liquidity infusion can reduce pressure on bank deposit rates, which should soften borrowing costs for businesses and individuals," Chowdhury stated. However, he also pointed out the challenges the RBI faces in achieving its inflation target. The central bank revised its GDP growth forecast for FY25 to 6.6 per cent, a notable downgrade from the earlier estimate of 7.2 per cent. Despite this, Chowdhury's team projects a slightly lower growth rate of 6.4 per cent.

The inflation forecast has also been revised upwards, with the RBI now projecting a CPI inflation rate of 4.8 per cent for FY25, up from the previous forecast of 4.5 per cent. "The increase in food inflation and the revision in inflation forecasts highlight the ongoing challenges in managing inflation," Chowdhury explained. He also emphasized that the RBI’s decision to raise its Q4 inflation forecast to 4.5% complicates the path toward achieving the 4 per cent target, potentially postponing any interest rate cuts in February 2025.

Global Economic Factors Adding Complexity to Rate Decisions
The global economic environment is also weighing heavily on the RBI’s policy decisions. Chowdhury noted the strengthening U.S. economy, limited rate cuts by the Federal Reserve, and a stronger U.S. dollar, which make it difficult for the RBI to justify a rate cut unless there is a significant slowdown in growth. "The new global normal is posing challenges for India's monetary policy decisions," he added.

Optimism for Potential Rate Cut in February 2025
On the other hand, Upasna Bhardwaj, Chief Economist at Kotak Mahindra Bank, expressed a more optimistic outlook for future rate cuts. Bhardwaj suggested that there is room for a 25 basis point repo rate cut in February 2025, contingent on the downside risks to growth. "The RBI has focused on achieving the last mile of disinflation and has taken note of tightening liquidity, which is why the CRR cut was introduced," Bhardwaj said. She added that further disinflationary trends, along with global factors, will play a crucial role in determining whether a rate cut becomes feasible in the coming months.

Ranen Banerjee- Partner and Leader Economic Advisory, PwC India said that the MPC majority stood its ground and did not yield to populism of delivering a rate cut in the face of a surprisingly lower Q2 GDP growth. “Given the high inflation print and its mandate of inflation targeting, it was walking the talk for the MPC. With the global economy tentative and the rate action by global central banks unclear given the aggressive statements being made on trade tariffs, it was a pragmatic decision to wait and watch another quarter before taking a call on the policy rate cut. The stance being maintained as neutral was a bit surprising though and there could have been some soft signalling through a change in stance,” Banerjee said.