Experts currently predict that the Reserve Bank of India (RBI) would reduce the repo rate starting in December of this year due to persistently high inflation, which has put an end to early rate decreases. The RBI is expected to reduce the repo rate by 75–100 basis points, as economists anticipate a short cycle of rate cuts.
The Reserve Bank of India has kept its forecast for CPI inflation for the current fiscal year at 4.5%, even though prices have decreased somewhat during the last several months.
The growth-inflation journey is proceeding as expected, according to RBI governor Shaktikanta Das, who also noted that the final stretch towards 4% will be the most challenging or sticky. He emphasized the importance of the number matching the target. Das made these remarks at a press conference following the announcement of the monetary policy on Friday.
The governor draws attention to the fact that there are still concerns associated with food inflation and that summer price fluctuations are apparent against the backdrop of a little winter price decrease. In this regard, the RBI will keep an eye on the prices of vegetables and pulses, which have recently increased, according to Yes Bank chief economist Indranil Pan.
The final stage of deflation towards the 4% objective is still difficult, therefore the RBI is ready to take its time, especially because growth is predicted to stay stable. This fiscal year, we anticipate a little rate drop that will likely begin in December 2024," he continued.
From 4.9% in March and 5.1% in February of 2024, headline CPI inflation decreased to 4.8% in April of that same year. However, the CPI food inflation increased little from 7.7% in March to 7.9% in April. According to analysts, MPC would continue to be cautious and prefer to evaluate the emerging risks before to making any decisions, given the persistent worries over inflation, especially with regard to the food basket. "The overall headline inflation has remained above the Central Bank's target of 4%, despite the fact that core inflation has been relatively benign," stated Rajani Sinha, chief economist at Care Ratings.
"In addition to higher food costs, the recent spike in global commodity prices—particularly for industrial metals—also contributes to an increased risk of inflation," she stated. She said that while anticipations of a good monsoon are encouraging for rural demand in general and food prices in particular, it will be crucial to watch its temporal and spatial distribution. Over the last year, there has been a notable decrease in prices due to headline inflation, which has decreased from 7.3% in the first quarter of 2022–2023 to 5% in the fourth quarter of 2023–2024.
According to Kotak Institutional Equities senior economist Suvodeep Rakshit, "the domestic growth dynamics will remain conducive for the RBI to be on a pause, at least in the August policy," because the central bank is still focused on guiding inflation toward the 4% objective over the long term. He said, "We continue to expect a shallow rate cut cycle (75-100 bps) from the December policy, with the stance changing either in October policy or along with the rate action given our expectations of domestic and global economic conditions."
