All eyes are on the upcoming meeting of the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI). This time experts believe that the RBI will not change the interest rates. Amid rising inflation and slow GDP growth, this is a challenging time for the RBI.
When will the RBI decide?
The RBI Monetary Policy Committee will meet from 4 to 6 December 2024, and its decision will be announced by Governor Shaktikanta Das on December 6.
Will interest rates remain stable?
Experts believe that the RBI will keep its repo rate stable at 6.5%, unchanged since February 2023.
Impact of inflation
- Retail inflation reached above 6% in October 2024. – It has become a challenge for the RBI to keep the Consumer Price Index (CPI) between 2-6%.
Balance in life: Inflation vs. Growth
RBI has to balance economic growth and inflation.
Falling GDP growth: How big is the problem?
India’s GDP growth in the September 2024 quarter was 5.4%, the lowest in two years.
Main reasons
- Decline in construction and mining sector
- Disappointing corporate earnings
Change in RBI forecast possible
Falling GDP forecast
RBI had projected GDP growth rate of 7.2% for 2024-25, which may now fall to 6.2%.
New inflation expectations
The current inflation rate is higher than RBI’s estimate.
When is the interest rate cut likely?
Experts expect an interest rate cut in February 2025, if inflation data shows improvement.
Expert opinion
Madan Sabnavis (Bank of Baroda)
“Given the current global instability and inflationary pressures, there will be no change in the repo rate.”
Aditi Nair (ICRA)
“Despite inflation being above 6%, a rate cut is likely in February 2025.”
Concerns of industry experts
Dhruv Agarwal (Housing.com)
“It is a tough job for RBI to boost GDP growth and keep inflation under control.”
Upasna Bhardwaj (Kotak Mahindra Bank)
“The downturn in the manufacturing sector is severe. There may be a slight improvement from the festive season, but overall growth may be 100 basis points lower than 7.2%.”
Past performance of RBI
Why repo rate steady?
The repo rate has been kept at 6.5% since February 2023, so that inflation can be controlled.
Changes in repo rate in the past
- May 2022: Repo rate increased by 40 basis points. – By February 2023: A total increase of 250 basis points.
Keep an eye on inflation and GDP data
Inflation rate (CPI)
- Target: 4% (± 2%)
- October 2024: Above 6%
GDP rate
- Q2 2024: 5.4%
RBI’s current attitude: wait and watch
What will be the new approach?
RBI may now move towards adopting a “wait and watch” policy.
What will be the benefit?
- Potential economic stability
- Plan to bring inflation under control in the future
Will there be an impact on the financial market?
This decision of RBI will directly affect the financial market. With interest rates remaining stable:
- The stock market may get relief.
- Stability will remain for lenders.
What is the strategy for the future?
RBI’s current priority is to ensure that the balance of the economy does not deteriorate.
Eye on long-term goals
- Stabilizing GDP growth.
- Bringing inflation rate within the target range.
What can we expect?
RBI is expected to keep interest rates stable in December 2024. New decisions may be taken in February 2025.
Summary
This meeting on RBI’s monetary policy will be important for the economy. Between rising inflation and slow GDP growth, RBI will have to strike a balance. Experts believe that there will be no change in interest rates in December, and the future strategy will depend on February 2025.
Frequently Asked Questions (FAQs)
1. Will the repo rate change in December 2024?
No, experts believe that the repo rate will remain stable at 6.5%.
2. What is the inflation rate?
Inflation rate remained above 6% in October 2024.
3. What will the RBI decide on GDP growth?
The forecast of GDP growth rate can be reduced.
4. When can the interest rate be cut?
Interest rate cut is likely in February 2025.
5. What is the objective of RBI?
To maintain a balance between inflation and economic growth.