RBI MPC Meeting December 2024: Though most analysts expect the RBI’s rate-setting panel to keep the key repo rate unchanged, the RBI governor faces a challenge to keep inflation under check and slightly provide liquidity stimulus to growth.
RBI MPC Meeting December 2024: The Reserve Bank of India’s (RBI) Monetary Policy Committee on Wednesday began its three-day deliberations to decide on the interest rates in India. RBI Governor Shaktikanta Das will announce the MPC decision at 10 am on Friday, the last day of the meeting.
Though most analysts expect the RBI’s rate-setting panel to keep the key repo rate unchanged, the RBI governor faces a challenge to keep inflation under check and slightly provide liquidity stimulus to growth.
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Inflation Remains Beyond RBI’s Tolerance Limit
Keeping inflation under check is the first priority for RBI Governor Shaktikanta Das. The central bank is mandated to keep CPI inflation at 4 per cent with a flexibility of +/- 2 per cent (or 2-6 per cent).
However, currently, the CPI inflation in India remains above the RBI’s upper tolerance limit as the latest October inflation print stands at 6.21 per cent, amid high food inflation.
Amid increased prices, the RBI is expected to revise upwards its FY25 inflation projection to 4.8 per cent, from 4.5 per cent earlier.
So, a high inflation print remains a big challenge for the RBI governor. He has already warned against the “premature” rate cuts as risky.
At a fireside chat organised by Bloomberg in mid-October, the governor had said, “Rate cut at this stage will be premature and can be very risky, when inflation is 5.2% and next print is also expected to be high, more so if growth is doing well… We will not miss the (global) party. We will wait and watch and join the party when inflation figure is durably aligned.”
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Economic Growth Has Fallen To Multi-Quarter Low
Though the RBI is not mandated to focus on growth, its monetary policies have a significant impact on economic activities. Currently, the GDP growth remains unexpectedly low with the latest Q2 print coming in at a seven-quarter low of 5.4 per cent, requiring a liquidity boost from the central bank.
Though most analysts expect the RBI MPC to keep the repo rate unchanged for the 11th time at 6.5 per cent on Friday, they see some liquidity ease from the RBI, including a CRR cut or open market operations (OMOs).
The repo rate change is subject to the 6-member RBI MPC’s voting. However, cash reserve ratio (CRR) and OMO are at RBI’s discretion.
The repo rate is the rate at which the RBI lends to commercial banks, while the CRR is the percentage of the deposits banks need to keep with themselves and cannot lend that amount.
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RBI MPC Expected Decision On Friday: What Do Economists Feel?
“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.
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.”
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.
