India’s c. bank likely to cut rate amidst economic slowdown

India’s central bank is expected to cut its key policy rate 25 basis points to 6.25 per cent in December to boost the slowing economy, according to a majority of economists polled by Reuters on Wednesday. They also expect inflation to fall in the near future.

While inflation spiked to 5.49 per cent in September, it is projected to moderate to 4.9 per cent this quarter and further decline to 4.6 per cent in the January-March period. This easing of inflationary pressures provides the Reserve Bank of India (RBI) with room to ease monetary policy.

The RBI has maintained its current interest rate for the past 10 consecutive meetings. However, with the recent shift to a ‘neutral’ stance and the anticipated slowdown in growth, economists believe a rate cut is imminent.

While India remains one of the fastest-growing major economies, its growth rate is expected to taper off to 6.9 per cent this fiscal year and 6.7 per cent in the next, lower than the RBI’s projections.

However, despite the potential for rate cuts, economists caution that inflation is expected to remain above the central bank’s four per cent target until early 2026. This limits the scope for significant monetary easing.

The majority consensus suggests that the RBI will likely implement one more rate cut after December, potentially in February. However, there is less certainty regarding further cuts beyond that point.

While other major central banks like the US Federal Reserve and the European Central Bank have already implemented substantial rate cuts, the RBI is expected to adopt a more cautious approach, waiting for clearer signs of sustained inflation moderation.

Attribution: Reuters

Subediting: Y.Yasser