Mumbai:With India’s October inflation registering the fastest pace of rise in over a year, a rate cut in the December 2024 policy review appears ruled out despite a slowing economy, said economists. The central bank is also likely to upwardly revise its official FY25 inflation projection at the upcoming review. The six-member Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) will meet between December 4-6.
Aditi Nayar, Chief Economist at ICRA Ltd said, “With the CPI inflation breaching the 6 per cent mark in October 2024 and expected to exceed the MPC's estimate for Q3 FY2025 by at least 60-70 bps, a rate cut in the December 2024 policy review appears ruled out, in spite of our projection of a sub-7 per cent GDP growth print for Q2 FY2025. We anticipate that a shallow rate cut cycle of 50 basis points may commence in February 2025 or later.”
Radhika Rao Senior Economist, DBS Bank said, “A sharp rise in October and above 5 per cent print in November will keep 3QFY25 (4Q24) inflation at mid-5 per cent above the official forecast of 4.8 percent yoy, necessitating an upward revision in official FY25 inflation projection at the next rate review. Firm inflation, hawkish speak from the central bank and heightened global volatility confirm that rate cuts are off the table in December.”
The Consumer Price Index (CPI) inflation worryingly soared further to a 14-month high of 6.2 per cent in October 2024, breaching the upper limit of the MPC's medium term target range of 2-6 per cent. The sequential hardening in inflation was largely led by the food and beverages segment, followed by a mild uptick in the core items. The food and beverages inflation surged to an eye-watering 9.7 per cent in October 2024 from 8.4 per cent in the previous month, amid an uptick in seven of the 12 food groups. Vegetables inflation hardened to a 57-month high of 42.2 per cent from 36 per cent in September 2024, which weighed on the food and beverages and, consequently, the headline inflation prints in the month.
In its October policy, the MPC chose to leave the repo rate, the rate at which it lends to commercial banks, unchanged at 6.5 per cent marking the tenth consecutive time the rate has remained steady. Interestingly, the policy stance was shifted to neutral from 'withdrawal of accommodation' signaling the central bank's readiness to ease monetary policy if inflation continued its downward trajectory. The RBI has maintained a status quo on benchmark interest rates since April 2023. The last hike in policy rate was done in February 2023 by 25 basis points to 6.5 per cent in February 2023.
