RBI MPC Set to Maintain Status Quo; Focus on Repo Rate
As the Reserve Bank of India (RBI) prepares to announce the outcome of its Monetary Policy Committee (MPC) meeting on October 9, industry experts anticipate that the central bank will keep policy interest rates unchanged. They suggest that if food inflation continues to moderate, a gradual rate cut of 50 basis points may be on the horizon in future meetings this fiscal year.
Dhiraj Relli, MD and CEO of HDFC Securities, indicated that while a rate cut cycle is not expected to begin, the RBI might shift its stance to neutral. “The MPC is likely to hold the repo rate steady at 6.50% for the tenth consecutive time. While it’s a close call, the RBI could opt for a no-change policy while adopting a more dovish tone,” Relli noted.
Despite inflation remaining below 4% over the past two months—largely due to a favorable base effect and a slowdown in food prices—risks to food inflation persist. CareEdge Ratings expects the MPC to maintain its current policy rate and stance, with particular attention to insights from newly inducted external members that could signal future policy directions. “We anticipate a dovish tone from the governor, setting the stage for potential rate cuts in the coming months,” the report stated.
Economic growth appears robust, with a revival in private consumption demand and early signs of increased private investment. Private consumption expenditure improved to 7.4% in Q1 from 4% in Q4 FY24, while overall investment GDP showed strong growth at 7.5%, up from 6.5% in the previous quarter. “This growth, along with double-digit expansion in the construction sector, suggests increased capital expenditure by households and the private sector, which will support future investments,” the report added.
Emkay Global Financial Services notes that a change in the RBI’s stance is possible, which could be interpreted as a signal for future rate cuts. However, the RBI is likely to emphasize its commitment to being “actively disinflationary,” remaining in a wait-and-watch mode to evaluate various macroeconomic factors.
