RBI to keep repo rate at 6.50% in October, cut by 25 bps in December: Reuters poll By Reuters

By Anant Chandak

BENGALURU (Reuters) – The Reserve Bank of India (RBI) is expected to cut interest rates by 50 bps over the next six months, according to a majority of economists in a Reuters poll who said it would likely wait until December to start. rather than moving in October.

Inflation remained below the RBI’s medium-term target of 4.0% for the second month in August. Although it is expected to rise slightly in the coming months, it has remained in the comfort zone of 2%-6% for almost a year and was expected to remain there until mid-2026.

Most economists said the RBI would not be driven to move quickly after the US Federal Reserve cut 50 basis points this month, thanks to a strong domestic economy and a stable currency.

Average forecasts for the repo rate were unchanged in April Reuters polls.

More than 80 percent of economists, 63 out of 76, in a September 17-26 Reuters poll predicted the RBI would keep the repo rate at 6.50 percent at the end of its October 7-9 meeting. Twelve forecast a cut of 25 basis points, while one anticipated a drop to 6.15%.

The RBI has kept the repo rate steady since February 2023, focusing on maintaining a tight trading range for the rupee through direct intervention in the foreign exchange market.

“The reason why the RBI will not rush, unlike the Fed, which had to cut, is because the Indian economy is still in a very strong position,” said Suman Chowdhury, economist at Acuite Ratings.

“With … food inflation showing signs of easing and for the next few months likely to perform better compared to last year, I see the likelihood of a cut in December,” he added.

Governor Shaktikanta Das recently reiterated that it was important not to “get carried away by some dips in inflation”, leading many to conclude that a few more benign inflation readings would be needed to give the RBI enough confidence to cut rates.

Some economists did not provide rate estimates beyond the next meeting amid uncertainty over the appointment of three new outside members to the Monetary Policy Committee, as the terms of current members are set to expire on October 4.

Median forecasts showed a quarter-point cut next quarter, with nearly 60% (41 out of 71) expecting rates to be 6.25%. However, just under a third (22) saw them at 6.50%, with the remainder (8) expecting rates of 6.15% or less.

More than half of those providing year-end forecasts said the central bank would wait until December before cutting interest rates, despite many major central banks already easing.

The RBI was expected to cut another 25 basis points in February, lowering the repo rate to 6.00%, according to median forecasts. That’s much slower than the Fed, which expects to cut another 50 basis points over the next three months and 100 basis points in 2025.

Despite the recent slowdown, the survey expects inflation in India to pick up again and average 4.5 percent this fiscal year and 4.3 percent next.

Asia’s third-largest economy was expected to expand 6.9 percent this fiscal year, weaker than the 8.2 percent growth in FY 2023-24. But it will remain the fastest-growing major economy.

(Other stories from the Reuters Global Economic Survey)