RBI MPC Meeting December 2024: Experts say the MPC may set the stage for a February rate cut and ease some liquidity conditions this time.
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The RBI MPC’s 3-day meeting is set to begin on Wednesday, December 4, and the monetary policy decision will be announced on December 6, the last day of the meeting. Economists expect the RBI’s rate-setting committee to maintain the status quo on the key repo rate but they said the central bank might ease some liquidity conditions by cutting CRR or undertaking open market operation (OMO) after the latest below-expected Q2 GDP growth.
“The weak GDP print in 2Q would warrant a 20-30bps cut in RBI’s growth projections for FY25. Elevated inflation will not allow the RBI to ease policy rates in December 2024; hence, we believe it will address any growth concerns through the liquidity route,” JM Financial said in its latest note.
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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.
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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 inflation in October 2024 stood at 6.21 per cent, which is the highest rate in 14 months. It was also the third consecutive month of rise in inflation.
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Sajid Chinoy, managing director and chief India economist, JP Morgan, said, “The complication for the RBI is that the economy in the last 2-3 years has been hit by a series of supply shocks, food supply shocks. Average CPI has been 5.8 per cent for the last 4 years. This year, it has come off but is still 5 per cent.”
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 said.
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Citi on Monday revised downwards its FY25 GDP forecast to 6.4 per cent, from 7 per cent earlier.
It also said the latest elevated level of CPI makes the December rate cut unlikely but the RBI may announce a CRR cut in order to ease some liquidity.
Goldman Sachs has also revised down its both CY24 and FY25 GDP growth target to 6.4 per cent and 6 per cent, respectively. However, it has maintained its CY25 and FY26 growth forecast at 6.3 per cent each.
Jefferies in its note said the slowdown in the government spending and the bank credit growth are “transitory” and they should reverse in the second half of the FY25.
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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.
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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.
