RBI opens door for December cut in October

Bank’s hold meets expectations: At its meeting on 7–9 October, the Reserve Bank of India (RBI) decided to keep its main policy rate unchanged at 6.50%, matching market expectations. However, the decision was not unanimous, with one of the six board members voting for a cut. Meanwhile, the RBI also decided—this time unanimously—to change its monetary policy stance to ‘neutral’ from ‘withdrawal of accommodation’, signaling a dovish turn that opens the door for rate cuts in the near future.

Weaker inflation and stronger monsoon drive shift in stance: In making its decision to change its monetary policy stance, the RBI pointed to inflation, which showed a sharp decline to 3.7% in August from 5.1% in June, and a robust GDP growth outlook driven by private consumption and investment. The decision was also supported by expectations of a good agricultural season amid a wetter-than-normal monsoon.

25 basis point cut penciled in for December: Our panelists expect the Central Bank to opt for a first 25 basis point cut at its next meeting on 4–6 December before continuing to ease gradually in the following quarters. However, the RBI stressed that future decisions will be data-driven and contingent on evolving macroeconomic conditions; adverse weather and worsening global conflict could stoke commodity prices, delaying in turn the beginning of the Central Bank’s easing cycle.

Panelist insight: Echoing most market analysts’ outlook for monetary policy, Goldman Sachs analysts said: “Going forward, we expect headline inflation to remain around RBI's target of 4% yoy in Q3 and Q4 FY25 on the back of easing food inflation, which, along with a moderation in GDP growth, should open up room for monetary policy easing by the RBI. We continue to expect a shallow easing cycle of total 50bp rate cuts from the RBI, with 25bp each in the December 2024 and February 2025 meeting.” That said, analysts at Nomura sounded a note of caution: “Technically, a December cut is not a done deal: Macro conditions may not entirely allay the RBI’s concerns in the December meeting, with higher headline inflation and growth signals open to interpretation. There is also the added uncertainty, as it will be the last meeting under Governor Das, unless he is given another extension.”

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