Annual retail inflation crossed the RBI's 6 per cent tolerance ceiling in October as it reached a 14-month-high at 6.21 per cent, driven primarily by high food prices during the festive season
The Reserve Bank of India (RBI) likely to hold its previous repo rate at 6.5 per cent by the end of December, said Reuters based on its November poll. The agency said that a sharp rise in consumer inflation has led 62 out of 67 economists in its poll to push back their forecasts for the first cut in the cycle by a couple of months to February, 2025.
However, five of the economists predicted a 25 basis point (bp) cut at the end of its December 4-6 meeting.
Earlier in October, a slim majority of economists predicted a cut of a quarter point to 6.25 per cent in the Reuters poll to bolster slowing economic growth.
Annual retail inflation crossed the RBI's 6 per cent tolerance ceiling in October as it reached a 14-month-high at 6.21 per cent, driven primarily by high food prices during the festive season. Food inflation comprises 46 per cent of the Consumer Price Index (CPI). Although the RBI shifted to a 'neutral' monetary policy stance in October and top government ministers called for interest rate cuts, RBI Governor Shaktikanta Das stated that any premature move to lower rates would be risky.
Last month, commerce minister Piyush Goyal said that considering food inflation for choosing cutting rates is a flawed theory. Goyal also said that inflation will come down by December.
The RBI's policy rate of 6.5 per cent has been maintained since February 2023.
"If Governor Das stays on... policy loosening is not on the cards for the time being. Das has been one of the more hawkish panel members in recent months," Shilan Shah, deputy chief emerging markets economist at Capital Economics said talking to Reuters.
Shah added that since evidence of the economy is cooling and inflation dropping back in coming months are there so that will eventually open the door for policy easing.
HSBC chief India economist Pranjul Bhandari also believe that the RBI will maintain its repo rate as unlike earlier times, they do not often look through vegetable price inflation anymore.
"Back-to-back (inflation) shocks seem to have made officials distrustful of quick disinflation in vegetable prices. It may prefer to wait now, and ease... (at the) February and April meetings," Bhandari told Reuters.
Indian economy's growth is projected to drop to 6.6 per cent this fiscal year from 8 per cent in the last year. It will then further slow down to 6.6 per cent in FY26.