RBI Interest Rate Outlook

By Anant Chandak

BENGALURU (Reuters) – The Reserve Bank of India (RBI) is expected to cut interest rates by a modest 50 bps over the next six months. Most economists in a Reuters poll indicated that the RBI would likely wait until December to begin cuts, rather than moving in October.

Inflation has remained below the RBI’s medium-term target of 4.0% for the second consecutive month as of August. While inflation may rise in the coming months, it has stayed within the 2%-6% comfort zone for nearly a year, and it is predicted to remain within this range through mid-2026.

Many economists believe the RBI will not follow the U.S. Federal Reserve’s lead after its recent 50 basis-point cut, citing a strong domestic economy and a stable currency.

Median forecasts for the repo rate have remained unchanged in recent Reuters polls. Over 80% of economists (63 out of 76) from a Sept. 17-26 poll expect the RBI to hold the repo rate steady at 6.50% during its meeting from October 7-9. Twelve economists forecast a 25 basis-point cut, while one predicted a drop to 6.15%.

Since February 2023, the RBI has kept the repo rate steady, focusing on maintaining a tight trading range for the rupee through direct intervention in the FX market.

Suman Chowdhury, an economist at Acuite Ratings, stated that the RBI will not rush into a cut, unlike the Fed, due to the robustness of the Indian economy. Chowdhury also noted that with food inflation showing signs of decreasing, he expects a rate cut in December.

RBI Governor Shaktikanta Das emphasized the importance of not being swayed by temporary dips in inflation, suggesting that multiple readings of stable inflation are needed before the RBI can confidently lower rates.

Some economists refrained from making rate predictions beyond the upcoming meeting due to uncertainty surrounding the appointment of three new external members to the Monetary Policy Committee as current terms will expire on Oct. 4.

Median forecasts suggest a quarter-point cut next quarter, with nearly 60% (41 out of 71) anticipating rates to be at 6.25%. However, about a third (22) expect rates to remain at 6.50%, while the rest (8) foresee rates at 6.15% or lower.

More than half of economists providing year-end forecasts believe the RBI will delay rate cuts until December, despite other major central banks already easing. The RBI is expected to cut another 25 basis points in February, bringing the repo rate down to 6.00%. This pace is much slower than the Fed, which may lower rates by another 50 basis points in the next three months and by 100 basis points in 2025.

Notwithstanding the recent decline, the poll anticipates Indian inflation will rise again, averaging 4.5% this fiscal year and 4.3% next. India’s economy is projected to grow by 6.9% this fiscal year, which is slower than the 8.2% growth recorded in FY 2023-24, but it will remain the fastest-growing major economy in Asia.

(Other stories from the Reuters global economic poll)