RBI Expected to Cut Rates to 6.25 Percent in December Amid Cooling Inflation and Slowing Growth

BI Expected to Cut Rates to 6.25 Percent in December Amid Cooling Inflation and Slowing Growth

A narrow majority of economists anticipate that the Reserve Bank of India (RBI) will reduce its key policy rate by 25 basis points to 6.25 percent during its December 4-6 meeting, according to a recent Reuters poll conducted between October 21 and October 29. This decision comes as India’s central bank seeks to stimulate slowing economic growth, with inflation expected to ease in the coming months.

Inflation saw an unexpected rise to 5.49 percent in September; however, it is projected to decline, averaging 4.9 percent this quarter and further decreasing to 4.6 percent in the January-March period. The moderating inflation outlook provides the RBI with room to potentially ease monetary policy to support the economy. RBI Governor Shaktikanta Das has highlighted that the current balance between inflation and economic growth remains favorable, suggesting that inflation is likely to moderate in the near future.

For the last 10 policy meetings, the RBI has kept interest rates at their highest levels since early 2019 to tackle inflationary pressures. However, the central bank shifted to a ‘neutral’ stance this month, with economists now suggesting a slight economic slowdown may tip the scales toward a rate reduction.

Out of 57 economists surveyed, 30 forecast a rate cut to 6.25 percent at the upcoming meeting, while the remaining 27 expect rates to stay unchanged. If the rate cut materializes, it will be a strategic step by the central bank to strike a balance between controlling inflation and boosting growth, while aligning with current economic dynamics.