RBI monetary policy meeting: Will governor Shaktikanta Das announce a rate cut? What to expect?

“Coming up: Monetary Policy Statement by #RBI Governor @DasShaktikanta on December 06, 2024, at 10:00 am,” the Reserve Bank announced on social media platform ‘X’.

Reserve Bank governor Shaktikanta Das, headed a six-member Monetary Policy Committee (MPC), started its meeting to decide on the next set of bi-monthly monetary policy on Wednesday.

Shaktikanta Das is chairing the last MPC meeting of his current term which ends on December 10.

The central bank has kept the repo or short-term lending rate unchanged at 6.5 per cent since February 2023.

The government has tasked the RBI with ensuring consumer price index (CPI)- based inflation remains at 4 per cent with a margin of 2 per cent on either side.

In an off-cycle meeting in May 2022, the MPC raised the policy rate by 40 basis points and it was followed by rate hikes of varying sizes in the subsequent meetings till February 2023. The repo rate was raised by 250 basis points cumulatively between May 2022 and February 2023.

The MPC members are: Nagesh Kumar, director and chief executive, Institute for Studies in Industrial Development, New Delhi; Saugata Bhattacharya, economist; Ram Singh, director, Delhi School of Economics; Rajiv Ranjan, executive director, RBI; Michael Debabrata Patra, deputy governor, RBI; and Shaktikanta Das, Governor, RBI.

RBI MPC meeting: Top points

• The Reserve Bank of India may ease monetary conditions by reducing banks’ cash reserve ratios after economic growth slowed to a seven-quarter low, but inflationary pressures may make it reluctant to cut interest rates just yet, Reuters reported citing analysts.
• Suman Chowdhury, executive director and chief economist, acuitè Ratings, told news agency PTI that the economic outlook is marked by uncertainty on growth and a caution on the inflationary front.
• A CRR cut would inject liquidity into the banking system, providing a cushion for economic activity without directly affecting the repo rate. Between December 2024 and February 2025, Chowdhury said, a 50-bps cut in CRR is significantly likely, bringing it to 4 per cent from 4.5 per cent.
• CRR is the proportion of deposits that banks must set aside as cash. Reducing it by 50 basis points would free up 1.1 trillion rupees ($12.98 billion) for fresh bank lending and push down market interest rates.
• “We maintain our out-of-consensus call for a 25 bps repo rate cut to 6.25%, due to weaker growth and a benign one-year forward inflation outlook,” economists at Nomura said in a note. “We do not see any policy tradeoffs from lowering rates at this juncture. We continue to expect 100 bps of cumulative cuts by mid-2025 to a terminal rate of 5.50%,” they added.
• If the RBI does cut rates, it would be the first time since May 2020.
• Retail inflation breached the Reserve Bank’s upper tolerance level, soaring to a 14-month high of 6.21 per cent in October, mainly on account of rising food prices.
• Retail inflation trended below the RBI’s upper tolerance band of 6 per cent since September last year. It was at 6.83 per cent in August 2023.
• India’s economic growth slowed to near two-year low of 5.4 per cent in the July-September quarter of this fiscal due to poor performance of manufacturing and mining sectors. The gross domestic product (GDP) had expanded by 8.1 per cent in the July-September quarter of 2023-24 fiscal.