RBI MPC Meeting: Rate Cut or Status Quo Decision on Friday
The Reserve Bank of India’s Monetary Policy Committee (MPC) will announce its interest rate decision on Friday, December 5, after a three-day meeting. Economists are sharply divided, with strong GDP growth and multi-decade low inflation pulling the central bank in opposite directions.
Key Takeaways
- Decision Date: RBI Governor Sanjay Malhotra will announce the MPC’s verdict on December 5.
- Key Data: Q2 GDP growth at 8.2%; October CPI inflation at a low of 0.25%.
- Expert Split: Views are balanced between a 25 bps rate cut and maintaining the status quo.
- Current Rate: The repo rate stands at 5.5% after a cumulative 100 bps reduction cycle.
The Rate Cut Argument
Inflation has remained below the RBI’s 2% lower mandate band for two consecutive months. The October CPI print of 0.25% was a multi-decade low, driven by lower food prices and favourable base effects. This has created room for monetary easing to support the economy.
Dharmakirti Joshi, Chief Economist at Crisil, anticipates a cut. “We anticipate a 25-basis point cut in the repo rate in December. While growth remains robust, a significant decline in retail inflation in October has created additional room for this adjustment,” he said.
A HDFC Bank report noted the decision is a “close call,” but sees a chance for a 25 bps cut given inflation is expected to stay below 4%.
The Case for Status Quo
On the other hand, India’s stellar 8.2% GDP growth in Q2 provides a strong argument for the RBI to hold rates. Some economists believe the central bank will prioritise supporting this growth momentum and maintaining financial stability.
Madan Sabnavis, Chief Economist at Bank of Baroda, expects no change. “Given that monetary policy is forward-looking and inflation… is likely to be in the 4 per cent plus region… the policy rate appears to be at a fair level. Under these conditions, we do not think that there should be any change,” he stated.
Aditi Nayar of ICRA also opined that with GDP exceeding 8%, a December rate cut now appears unlikely.
Market Guidance in Focus
Beyond the rate decision, the RBI’s guidance on future policy stance will be crucial. Experts expect the tone to be neutral to dovish, assuring markets of adequate liquidity and hinting at future easing if conditions permit.
Mandar Pitale of SBM Bank (India) expects a hold, citing the need to attract foreign flows and protect bank deposits. “A rate reduction could move retail resources away from the banking sector,” he explained.
The State Bank of India’s research department highlighted that the RBI must clearly communicate its rate trajectory to the markets this week.
The government mandates the RBI to target 4% retail inflation with a +/- 2% band. Friday’s decision will reveal how the central bank balances its growth-inflation mandate in the current economic landscape.
