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The Reserve Bank of India (RBI) is poised to announce its monetary policy decision on December 6th, a meeting anticipated with considerable interest given the current economic climate. A recent CNBC-TV18 poll reveals a prevailing expectation among economists that the repo rate will remain unchanged for the eleventh consecutive time. This decision is largely attributed to persistent inflationary pressures and the volatility observed in global markets. While a slowdown in GDP growth has created pressure for a rate cut, particularly from government officials, the overriding concern remains inflation, which has already surpassed the RBI's tolerance threshold. The poll indicates that seven out of ten economists believe the recent weaker-than-expected GDP figures will not trigger a premature rate reduction, prioritizing the battle against inflation.
The possibility of a rate cut in the near future appears slim, with the majority of respondents (90%) predicting the first rate cut to occur in February, at the earliest. The total reduction anticipated throughout the entire rate-cutting cycle is estimated to range from 50 to 75 basis points. Given inflation currently exceeding 6%, an immediate rate cut is deemed unlikely. However, there's a growing acknowledgment that economic growth needs support. As a potential precursor to future rate easing, the RBI might instead opt for a reduction in the cash reserve ratio (CRR). However, even this measure lacks widespread support among economists, with only half anticipating its implementation. A CRR cut would inject liquidity into the banking system, alleviating some of the pressure on banks and potentially stimulating lending and investment.
The RBI's GDP growth forecast for fiscal year 2025 (FY25) is also set to draw significant attention. The CNBC-TV18 poll suggests a divergence of opinion on this matter. A significant portion (70%) of respondents predict a downward revision of the FY25 growth forecast to a range between 6.4% and 6.7%. A smaller group (20%) anticipates a more substantial reduction, with the forecast falling within the 6% to 6.3% range. This variation in predictions underscores the uncertainty surrounding the future trajectory of India's economic growth. On the inflation front, there's also a split in expectations. Half of the respondents anticipate an upward revision of the current year's inflation projection to 4.8% to 4.9%, driven by concerns about food inflation. The remaining 40% expect a more modest increase in the inflation forecast.
Beyond the core policy decisions, the RBI's statement is expected to emphasize its approach to liquidity management. The poll suggests a consensus that the RBI will continue to manage liquidity through both its main operations and fine-tuning measures as needed. This underscores the central bank's commitment to maintaining financial stability in the face of economic challenges. In conclusion, the upcoming RBI monetary policy announcement is expected to strike a delicate balance between managing inflation and supporting economic growth. While a rate cut remains unlikely in the immediate term, the possibility of a CRR reduction and a downward revision of the GDP growth forecast adds layers of complexity to the policy considerations. The focus will be on the RBI's communication strategy and its assessment of the evolving economic landscape, particularly regarding the interplay between inflation and growth in India.
The uncertainty surrounding future economic trends adds to the complexity of the RBI's task. Global market volatility, geopolitical tensions, and fluctuating commodity prices are all factors that could impact India's economic performance. Therefore, the RBI's decisions need to be agile and responsive to changing conditions. The central bank's ability to navigate these uncertainties and achieve its dual mandate of price stability and economic growth will be crucial for India's economic health in the coming months and years. While the poll provides valuable insight into the expectations of economists, the final decision rests with the Monetary Policy Committee (MPC) of the RBI. The MPC's assessment of the available data and its assessment of the risks will ultimately shape the outcome of the December 6th policy announcement. Furthermore, the RBI's communication will be key in conveying its intentions clearly and transparently, managing market expectations and maintaining confidence in its ability to guide the economy through the current challenges.
Source: RBI Monetary Policy: Status quo on rates expected, CRR cut under watch, finds CNBC-TV18 poll