RBI Set to Hold Rates in October, BofA Hints at Future Policy Adjustments
RBI likely to prioritize stability, keeping repo rate steady at 6.50% in October, says Bank of America
RBI Set to Hold Rates in October
Bank of America (BofA) Securities recently predicted that the Reserve Bank of India (RBI) will likely keep the repo rate at 6.50% during the upcoming October Monetary Policy Committee (MPC) meeting.
According to BofA, the RBI is optimistic about near-term growth and inflation, which makes any immediate change in monetary policy unlikely. RBI Governor Shaktikanta Das has also dismissed the idea of any short-term shifts in policy, keeping India’s growth outlook positive. The RBI’s latest bulletin also supports this view, showing that growth and inflation are on track to meet the RBI’s targets of 7.2% growth and 4.5% inflation for FY25.
Possibility of a Change in Approach
BofA noted that while the RBI remains confident, some near-term data shows mixed results, with growth risks increasing. Inflation is closer to its target than it has been in years, and real interest rates are still high. Because of this, the RBI may take a more data-driven approach, potentially signaling a neutral stance in the future. If the central bank decides to cut rates, this could be the first step. The October meeting will also see three new members joining the MPC, who are expected to align with the RBI’s current view for now.
Going forward, BofA expects economic growth to slow down gradually and inflation to decrease, which could allow the RBI to cut rates in the coming months. The bank predicts a 100-basis point cut by the end of 2025, starting in December 2024.
No Immediate Change in October
Despite signs of slowing growth and cooling inflation, BofA doesn’t expect the RBI to change its policy in the October meeting. Even with lower global growth and commodity prices, the central bank remains optimistic about its 7.2% growth forecast for FY25. Governor Das emphasized that the RBI will continue to follow data closely before making any changes to policy.
While the RBI’s current projections focus on controlling inflation and narrowing the output gap, conditions like lower inflation, a balanced output gap, global monetary easing, and a narrowing gap between credit and deposit growth could support a future shift to a neutral stance.
Growth and Inflation Forecasts to Stay Mostly the Same
BofA doesn’t foresee any major changes in the RBI’s near-term forecasts. Although weaker data could slightly reduce growth projections for the second quarter of FY25, the RBI is expected to revise its second-half forecasts upwards to maintain its overall 7.2% growth target. The central bank’s positive outlook is supported by strong growth in agriculture and services, despite weaker global conditions.
