RBI MPC Meeting: Will the Central Bank Cut Rates or Hold Steady? 5 Key Indicators to Watch

The Reserve Bank of India’s ( RBI ) Monetary Policy Committee (MPC), led by Governor Shaktikanta Das, is set to announce its fifth monetary policy for the 2024-25 financial year today, following a two-day review meeting. As the country grapples with rising inflation and slower-than-expected GDP growth, economists are closely watching the policy stance to gauge the central bank's approach to balancing economic growth and inflation control.

This meeting holds significant importance as the RBI’s decision will set the tone for monetary policy in 2025. With inflation concerns mounting and India’s GDP growth at a near two-year low, the MPC will be tasked with making crucial decisions to steer the economy. While some experts expect a reduction in the cash reserve ratio (CRR), others anticipate the RBI to hold rates steady in December, with a possible rate cut in February.

Here are the key indicators to look out for:

1. Repo Rate
The benchmark repo rate has remained unchanged at 6.5 per cent for the past ten policy meetings, most recently in October, when the RBI shifted its stance from “withdrawal of accommodation” to a “neutral” position. Many economists predict a status quo in the December meeting, especially in light of rising inflation. However, with GDP growth falling short of expectations, a rate cut could be on the table in February if inflationary pressures moderate. 

2. Inflation
India’s retail inflation hit a 14-month high of 6.21 per cent in October, driven primarily by soaring food prices, with vegetables like tomatoes, potatoes, and onions seeing dramatic price hikes. Economists predict that the MPC will revise its inflation forecast for Q3 2024 from 4.8 per cent to 5.5 per cent, while Q4 inflation is likely to stay around 4.2 per cent. For FY25, the inflation estimate could be raised above the previous 4.5 per cent forecast.

3. Economic Growth
India's GDP growth for the July-September quarter of FY25 (Q2) was just 5.4 per cent, the lowest in seven quarters, marking a significant slowdown driven by weak investment spending and sluggish performance in the manufacturing and mining sectors. Research from ICICI Bank suggests the RBI may revise its FY25 growth forecast lower from 7.2 per cent, adding further pressure on the MPC to stimulate economic activity.

4. Liquidity
With liquidity conditions remaining shallow and a slowdown in economic growth, there is speculation that the RBI might choose to inject liquidity into the system through a phased reduction in CRR. 

5. Post-policy Rate Cut Guidance
Although many experts anticipate the RBI will maintain a status quo on policy rates in this meeting, attention will shift to Governor Das’ post-policy statement for clues on future policy actions. The statement will likely provide insights into the central bank’s strategy for managing interest rates moving forward, especially with a potential rate cut expected by February 2025.