RBI MPC Decision: Will Shaktikanta Das announce or defer the rate cut in December? Experts decode

The Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) announced on Wednesday, October 9, that it would keep the repo rate unchanged at 6.5 per cent for the tenth consecutive meeting, in line with market expectations. However, the MPC unanimously agreed to change its stance from "withdrawal of accommodation" to "neutral," signalling the potential for a rate cut in December. The decision came after the MPC's three-day meeting, which began on October 7 to discuss the fourth bi-monthly monetary policy for FY25.

RBI Governor Shaktikanta Das stated that five out of six members voted in favour of maintaining the current rate, with the committee also deciding to keep the standing deposit facility (SDF) rate at 6.25 per cent and the marginal standing facility (MSF) rate and bank rate at 6.75 per cent.

“Domestic growth has sustained its momentum, and the global economy has remained resilient since our last meeting. However, downside risks persist due to geopolitical conflicts, financial market volatility, and elevated public debt. On a positive note, world trade is showing signs of improvement,” the RBI Governor said in his monetary policy statement. 

A neutral stance provides the RBI with greater flexibility to adjust interest rates as inflation trends evolve, a contrast to the previous policy of withdrawing accommodation, which ruled out the option of rate cuts.

The central bank's growth and inflation projections remained steady, with the RBI maintaining its GDP growth forecast for FY25 at 7.2 per cent and keeping its inflation projection for FY25 at 4.5 per cent. Das also emphasised that the RBI will stay "watchful" of global and domestic conditions as the economic landscape continues to evolve.

Expert Opinion on RBI’s Policy Decision

With this new stance, many experts believe the central bank is opening the door for potential rate cuts in the near future. Below are key insights from industry professionals on what this policy change means for the Indian economy and financial markets.

Manoranjan Sharma, Chief Economist at Infomerics Ratings, expressed strong confidence in the RBI's ability to navigate complex economic conditions, commending the central bank for its consistency.

“Well, well! Hitting the bull’s eye again and again, quite like Arjuna hitting the eye of the fish while looking in a mirror beneath him. Others may sometimes be correct, but consistency is our virtue and is the key differentiator. I don’t remember having ever gone wrong in the last 10-15 years. What does it show? Basically two things—the RBI is following an objective and transparent policy, and we are able to connect the dots and arrive at meaningful inferences and useful policy prescriptions,” said Sharma.

Anitha Rangan, Economist at Equirus, also acknowledged the significance of the change in stance but cautioned that a rate cut may not be imminent.

“As a first step towards getting closer to rate accommodation, RBI changed its stance to 'neutral' from withdrawal of accommodation. The policy is, however, unchanged at 6.5 per cent. Nevertheless, the vote was 5-1 for keeping policy unchanged,” she noted.

Rangan pointed out that while the RBI’s growth and inflation targets remain steady, the central bank is keeping its options open for accommodation. She emphasised that while inflation is on a declining path, there are still risks from geopolitical tensions and weather-related issues. 

"The RBI keeps its guard on, noting that 'we have to be very careful of opening the gate and need to keep the horse on a tight leash' and mentioning that the RBI cannot be complacent with rapidly evolving global conditions," she added.

Ankita Pathak, Chief Macro and Global Strategist at Angel One Wealth argued that while the stance change is a step toward easing, the central bank remains cautious.

"India has played it safe, keeping a laser-sharp focus on inflation with an intent to support growth. The change in stance to neutral is in line with expectations and hints at a rate cut in December 2024," Pathak stated.

She further highlighted the central bank’s consideration of geopolitical factors and oil prices, noting that the RBI is not rushing into policy accommodation despite global trends such as the U.S. Federal Reserve cutting rates. Pathak believes the change in stance and expectations of a rate cut, along with the inclusion of Indian bonds in the FTSE indices, will support lower yields in the domestic market. "For equity, this is largely a non-event as in the short term it’s getting driven by factors beyond rates," she added.

Amar Ambani, Executive Director at YES Securities, echoed the view that the RBI's shift to a neutral stance provides more flexibility in the coming months.

“Along expected lines, the RBI kept interest rates unchanged and shifted its monetary policy stance to 'Neutral,' explaining that it aims to ensure sustainable liquidity conditions to support growth. This change opens the door for a possible interest rate cut in December or February, assuming no inflationary shocks from exogenous factors like oil,” said Ambani.

He also remarked that while growth and inflation forecasts remain unchanged, the central bank's confidence stems from the expectation that food inflation will ease in the coming fiscal period.

Sujan Hajra, Chief Economist & Executive Director at Anand Rathi Shares and Stock Brokers, saw the change in stance as an expected development and a potential signal for the beginning of an easing cycle. However, he noted that the RBI would remain cautious in the face of inflation risks.

“The change in stance was expected. This signals the start of an easing cycle, but as Governor Das emphasised, while the inflation 'horse' has been brought back into the stable, the central bank will be cautious in opening the gates, lest the horse leaps out again,” Hajra explained.

He added that the latest growth and inflation projections suggest that the RBI is confident growth will sustain. Hajra believes that if macroeconomic indicators continue to weaken through Q3 FY25, the probability of a rate cut in December will increase. However, if growth picks up as government spending resumes, the RBI may wait until February 2025 to make a move.

Apurva Sheth, Head of Market Perspectives & Research at SAMCO Securities, emphasised the flexibility that the RBI has gained with its neutral stance. According to Sheth, the decision reflects the central bank's intent to focus on domestic economic conditions while being cautious about inflation risks.

"The RBI has shifted its stance from 'withdrawal of accommodation' to 'neutral' while maintaining the repo rate at 6.5 per cent. This decision signals a clear focus on domestic economic conditions, prioritising them over aligning with the U.S. Federal Reserve’s rate movements," Sheth remarked.

She also pointed out that despite the easing of Consumer Price Index (CPI) inflation below 4 per cent, risks from weather disruptions and geopolitical uncertainties remain. “The RBI has highlighted these factors as critical challenges to keep inflation in check. Given that the projected CPI remains above the 4 per cent mark, the decision to keep the repo rate unchanged is a prudent move, aimed at stabilising inflationary pressures and supporting economic stability,” concluded Sheth.

The RBI’s decision to maintain rates but shift to a neutral stance has been broadly seen as a step towards policy accommodation in the near future. While some experts foresee a rate cut as early as December 2024, others believe the central bank may wait until early 2025, depending on the evolution of inflation and growth. What is clear, however, is that the RBI has equipped itself with more flexibility, preparing to respond dynamically to the evolving economic landscape.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.