RBI monetary policy tomorrow, will it take global cue to cut repo rate?

The new monetary policy committee of the Reserve Bank of India (RBI), led by Governor Shaktikanta Das, will announce the new repo rate on Wednesday (October 9) which is currently at 6.5 per cent.

Experts say that the RBI’s monetary policy committee is expected to keep the repo rate unchanged at 6.5 per cent, however, it is being speculated that the new committee may lay the ground for an interest rate cut due to a number of global easing kicks off and moderation in growth in the fastest-expanding major economy.

As per the report, most of the 35 economists Bloomberg surveyed predict a switch to a ‘neutral’ stance for the first time since June 2019 from its current hawkish view.

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“There is agreement that the RBI needs to pivot from its hawkish hold to policy easing. Consensus is expecting the first cut in December. We think it will happen at the October 9 review. The three new external members on the monetary policy committee, along with the RBI members, are likely to focus on the latest developments — a jumbo Federal Reserve rate cut and hostilities in the Middle East that heighten supply-chain risks,” Bloomberg report said.

The new policy committee has three external members who were appointed last week. One among the new members — Saugata Bhattacharya, a former chief economist at Axis Bank Ltd. — has publicly voiced his views on inflation and growth, advocating for the RBI to cut rates.

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The other two new members – Dr Nagesh Kumar, director and chief executive at the Institute for Studies in Industrial Development, and Ram Singh, director of the Delhi School of Economics – alongwith Saugata Bhattacharya have now joined Governor Das, executive director Rajiv Ranjan, and Deputy Governor Michael Debabrata Patra on the panel.

The Bloomberg report mentioned economists as saying that it is, however, unlikely the new members will vote against the three other RBI MPC team members so early on.

“They may agree with RBI’s house view for some time,” the report quoted Rahul Bajoria, an economist at Bank of America Corp, as saying.  

Bajoria, however, predicting a shift in policy stance, said: “Still, incoming near-term data is much more mixed, and growth risks appear tilted to the downside.”  

Pressure building on RBI

Shaktikanta Das, so far, has dismissed calls for rate cuts stating that high food prices will prevent inflation from staying at 4 per cent target level on a sustainable basis.  

However, pressure has been building on the RBI for the rate cut after the US Federal Reserve and other central banks did the same and also there has been good rainfall as well as predictions of a bumper harvest.  

Rate cut possible in December?

The report quoted HSBC Plc. economists as saying that a change in the RBI’s policy stance language would pave the way for a quarter-point rate cut in December.

The economists expect another quarter-point cut at the February meet, taking the repo rate to 6 per cent.

Rally possible in bond markets

Any indications of a more dovish stance from the RBI, such as adjustments to the policy language, could trigger a bond rally. Traders have been keeping a close watch on the potential changes that might suggest more favorable liquidity conditions in the banking sector.  

The RBI holds six bi-monthly meetings annually and the one on October 9, 2024 will be the fourth MPC meeting of the financial year 2024-25. During the meeting, the central bank reviews various macroeconomic indicators.