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RBI MPC Meeting December 2024: Experts claim the MPC might establish the phase for a February price cut and relieve some liquidity problems this moment.
RBI Governor Shaktikanta Das will certainly reveal the financial plan choice at 10 get onFriday (File Photo)
The RBI MPC’s 3-day conference is readied to start on Wednesday, December 4, and the financial plan choice will certainly be revealed on December 6, the last day of the conference. Economists anticipate the RBI’s rate-setting board to preserve the status on the vital repo price however they claimed the reserve bank may relieve some liquidity problems by reducing CRR or embarking on competitive market procedure (OMO) after the current below-expected Q2 GDP development.
“The weak GDP print in 2Q would certainly require a 20-30bps cut in RBI’s development estimates for FY25. Elevated rising cost of living will certainly not enable the RBI to relieve plan prices in December 2024; for this reason, our team believe it will certainly attend to any kind of development worries via the liquidity path,” JM Financial said in its latest note.
The RBI MPC meeting will take place for three days between December 4 and December 6. Following this, RBI Governor Shaktikanta Das will announce the monetary policy decision at 10 am on the last day of the meeting on December 6, Friday.
According to the latest official data, India’s GDP growth slowed to a seven-quarter low of 5.4 per cent, which is far lower than the consensus expectation of 6.5 per cent. It is also lower than the 8.1 per cent economic growth recorded a year ago and 6.7 per cent a quarter ago.
Aditi Nayar, chief economist and head (research and outreach) at ICRA Ltd, said, “In light of the recent spike in the CPI inflation, we anticipate a status quo from the MPC next week. However, with the GDP growth print sharply undershooting the Committee’s expectations, a February 2025 rate cut may be on the table if the next two inflation prints recede.”
India’s CPI rising cost of living in October 2024 stood at 6.21 percent, which is the greatest price in 14 months. It was likewise the 3rd successive month of increase in rising cost of living.
Sajid Chinoy, taking care of supervisor and principal India financial expert, JP Morgan, claimed, “The problem for the RBI is that the economic situation in the last 2-3 years has actually been struck by a collection of supply shocks, food supply shocks. Average CPI has actually been 5.8 percent for the last 4 years. This year, it has actually come off however is still 5 percent.”
Though the private sector demand has not picked up, but when you have got repeated supply shocks and high food inflation, this increases the conviction that February cut happens, he added.
“I think in December, the MPC sets the stage for a February rate cut and more importantly sets the stage for liquidity management,” Chinoy claimed.
Citi on Monday modified downwards its FY25 GDP projection to 6.4 percent, from 7 percent previously.
It likewise claimed the current raised degree of CPI makes the December price reduced not likely however the RBI might reveal a CRR cut in order to relieve some liquidity.
Goldman Sachs has actually likewise modified down its both CY24 and FY25 GDP development target to 6.4 percent and 6 percent, specifically. However, it has actually preserved its CY25 and FY26 development projection at 6.3 percent each.
Jefferies in its note claimed the downturn in the federal government investing and the financial institution credit scores development are “temporal” and they should reverse in the second half of the FY25.
It said the possibility of a CRR cut in the upcoming policy meeting has now increased after the below-expected GDP growth print.
Morgan Stanley also expects the key policy rates to remain steady. However, it expects the RBI to announce liquidity-enhancing measures like open market operations (OMO).
In the last monetary policy review, the RBI MPC in October 2024 had kept the key repo rate unchanged for the 10th consecutive time at 6.5 per cent, with a 5:1 majority. However, it decided unanimously to change the stance from the ‘withdrawal of accommodation’ to ‘neutral’, opening the floor for a rate cut soon.
The reverse repo rate stands at 3.35 per cent.
The repo rate is the rate at which the RBI lends money to the commercial banks, whereas the reverse repo rate on commercial banks’ deposits with the RBI.
The RBI MPC had also kept the SDF unchanged at 6.25 per cent, and MSF and Bank Rates maintained at 6.75 per cent. The SDF is the lower band of the interest rate corridor, while the MSF is the upper band.
Currently, the cash reserve ratio (CRR) stands at 4.5 per cent and the statutory liquidity ratio (SLR) stands at 18 per cent.
The RBI has maintained status quo on benchmark interest rate since February 2023.
