RBI economists back pause on rates as inflation cools, growth stays strong

Mumbai: A lower inflation print and strong economic growth have led to a majority of economists proposing a pause on policy rates at a consultative meeting held by the Reserve Bank of India governor on Monday and Friday.

The RBI regularly holds consultative meetings with economists and market participants to gauge their views on growth and inflation. Another such meeting with market participants like mutual fund managers and treasury heads of banks will be held on Wednesday, said people with knowledge of the matter.

Most market participants are likely to pitch for a reduction in policy rate, citing the recent rate cut by the US Federal Reserve, as it would be key in maintaining interest rates differential between the two countries, economists said.

The six-member monetary policy committee will meet for three days starting September 29 and governor Sanjay Malhotra will announce the rate decision on October 1.

The RBI, which has lowered the policy rate by one percentage point to 5.5% since February, kept it unchanged in its last policy in August.

Retail inflation has been below the RBI’s 4% target for the seventh consecutive month in August at 2.7%. The economy grew better than expected at 7.8% in the April-June quarter.

Economists from State Bank of India, Barclays, Nomura and Morgan Stanley are among economists who have forecast a quarter-percentage-point rate cut in the next policy.

“A cut in September will require a calibrated communication by the RBI, as post-June the bar for rate cut is indeed higher. But there is no point in committing a Type-2 error again-no rate cut with a neutral stance-by not cutting rates in September,” SBI group chief economic advisor Soumya Kanti Ghosh wrote in a report Monday. “Inflation will continue to remain benign even in FY27 and is tracking below 2% in September and October without a GST cut,” Ghosh said.

The RBI kept rates unchanged in its August meeting after having already delivered significant easing-a half-percentage-point repo cut and one-percentage-point reduction in the cash reserve ratio-while also shifting its stance from “accommodative” to “neutral”. Inflation had slowed to 2.1%, well below the 4% target, but the central bank remained cautious given sticky core inflation.