The upcoming meeting of the India’s Monetary Policy Committee (MPC) may set the groundwork for a rate cut as global central banks continue to cut their policies rates while India Inc’s’ growth rate declines. About three-quarters of economists in a Bloomberg survey expect the RBI to maintain the repurchase rate at 6.5%, while others expect a change in stance for the first time since 2019. Such a move might predict another rate cut in the future; more so, as other global central banks, including the Fed, adopted measures towards rate cuts.
The new members in MPC
The next MPC meeting will involve three new external members, all the of them being economists with great academic and financial background. While admission rates continue to cause inflationary pressures and particularly, high food price inflation, RBI Governor Shaktikanta Das has declined to cut rates. However, with good monsoon in food group agriculture and world rate cuts, calls are building on RBI to replicate the similar measures. Analysts at HSBC suggested that a change in monetary policy might mean a 25 basis point rate cut in December, followed by another in February.
Among the new external members, only Saugata Bhattacharya, a former chief economist at Axis Bank sees merit in the rate cuts. But most of the economists are of the view that it is unlikely that the new members will go out of their way to oppose the current RBI officials in the first meetings. Bank of America economist Rahul Bajoria notes that some new members might be supportive of the RBI’s outlook now, but mixed data and lowering growth risks could sway a change in approach.
It could be a decisive shift
While India’s economic growth moderated to 6.7% in the second quarter, falling short of the RBI’s 7.1% projection, bond markets are poised for a potential rally. A more dovish stance from the RBI, combined with improving liquidity conditions, could lower yields and signal the beginning of a more accommodative monetary policy.
