Will RBI cut repo rate in December?
&imwidth=600&imheight=450&format=webp&quality=medium "Will RBI cut repo rate in December?")
Reserve Bank of India (RBI) governor Sanjay Malhotra speaks during a news conference after the monetary policy review at RBI headquarters in Mumbai Photograph: (AFP)
RBI monetary policy: In August, the Monetary Policy Committee had noted that “monetary policy has used policy space created by a benign inflation outlook.”
ICICI Bank, one of the largest private lenders in the country, has said in a report that the Reserve Bank of India's Monetary Policy Committee (MPC) will consider cutting policy rates in its December meeting if external headwinds persist and domestic growth begins to decelerate. On Wednesday, the RBI issued an update on the country's monetary policy, keeping the repo rate unchanged at 5.5 per cent.
In August, the Monetary Policy Committee had noted that “monetary policy has used policy space created by a benign inflation outlook.”
However, in the October review, this language shifted to "sobering of inflation has given greater leeway for monetary policy to support growth," which, according to ICICI Bank, marks a dovish tilt.
What ICICI said in its report
ICICI said in the report that the main factor in deciding the trajectory of policy rates when inflation is benign is growth. "If external headwinds remain and growth starts to decelerate, MPC is likely to go ahead and cut rates," the report added.
It also cited the remarks made by Governor Sanjay Malhotra, which supported the idea of a rate cut in the future.
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The report noted that the governor had emphasized that “some room has opened for easing, and depending on several factors, the next action will be decided in December.”
The report also highlighted that two external members of the MPC voted in favour of changing the stance to "accommodative," signaling a dovish bias in the policy outlook.
The report said that the RBI can cut the policy rates by 25 basis points.
GDP prints, high-frequency indicators, and developments in the external trade environment will, however, decide the future of the trajectory of the policy rates, it said.
The governor said in the press conference that GST rate cuts will provide support to consumption, partially offsetting the negative impact of US tariffs on the Indian economy.