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The Reserve Bank of India (RBI) is expected to maintain the current repo rate of 6.5% during its final monetary policy committee (MPC) meeting of the year next week, according to HDFC Bank. The country’s largest private sector bank, in a report, projected that the RBI would hold the repo rate steady, marking the 11th consecutive time since the last hike in February 2023.
The RBI has kept the rate unchanged for the past 10 MPC meetings, with the 6.5% rate being the highest since February 2023. However, HDFC Bank also indicated that the chances of a rate cut have increased, with February’s MPC meeting presenting a more likely scenario for the reduction. The bank noted that weaker-than-expected data, particularly on the country’s GDP growth, could prompt the RBI to consider easing rates.
The latest GDP data released on Friday showed a slowdown in India’s economic growth for the second quarter of FY25, which decelerated to 5.4%, down from 6.7% in the previous quarter. This slower-than-expected performance of the economy may influence the RBI’s decision to adjust its policy stance in the coming months.
Rural Demand May Drive Economic Recovery
The HDFC report also forecasted a potential recovery in rural demand in the second half of the fiscal year, driven by several key factors. These include strong agricultural performance, payouts under government schemes, and increased government spending, all of which are expected to stimulate economic activity in rural areas. This optimism stems from expectations that these factors could positively impact overall consumption and economic growth.
The central bank’s decision to keep the repo rate unchanged in the upcoming meeting aligns with its cautious approach to managing inflation while balancing the need for economic growth. At the same time, the RBI’s shift to a “neutral” stance during the October 2023 MPC meeting signaled that future rate cuts could be on the horizon. This shift suggests that the central bank is open to adjusting its policy should economic conditions warrant it.
Looking Ahead to February
As HDFC Bank suggested, a rate cut in February is increasingly likely, with expectations that the RBI will act to support the economy if the growth slowdown continues. Analysts are also watching how rural demand evolves and how government initiatives impact economic activity in the months ahead. Should these factors lead to a sustained slowdown, the RBI could consider cutting rates in February to provide further stimulus to the economy.
The RBI’s decisions on the repo rate are pivotal for businesses, consumers, and investors alike, as they influence borrowing costs and economic conditions across the country. As the economy navigates challenges, all eyes will be on the RBI’s monetary policy moves in the coming months.
Key Takeaways:
- RBI expected to keep repo rate at 6.5% during next week’s MPC meeting.
- A rate cut in February 2024 looks increasingly probable due to slower-than-expected GDP growth.
- Rural demand recovery, government spending, and agricultural performance may drive economic growth in the second half of FY25.
- RBI’s “neutral” stance leaves room for a potential rate cut if needed.
Sources By Agencies
