The Reserve Bank of India (RBI) has maintained its key interest rate at 6.5% during its latest meeting on October 9, 2024, marking the tenth consecutive time it has held this rate steady. However, the RBI has shifted its policy stance to 'neutral', indicating the potential for rate cuts beginning in December 2024 [900f5a83]. RBI Governor Shaktikanta Das expressed optimism about achieving the inflation target of 4%, despite inflation remaining elevated due to persistent high food prices [900f5a83].
In a recent statement, Union Minister Piyush Goyal highlighted that average inflation in India during the Modi government has been the lowest since 1947, urging the RBI to cut interest rates [3f7b4109]. He pointed out that October 2024's Consumer Price Index (CPI) inflation rose to 6.1%, the highest in 14 months, with food inflation reaching 10.87% [3f7b4109]. Goyal predicted that inflation would decrease again in December or January, emphasizing the need to understand the factors behind inflation spikes [3f7b4109].
Das has resisted calls to exclude food prices from the inflation target, emphasizing that food constitutes nearly 50% of India's consumer inflation basket. He argued that such a move could confuse consumers and undermine the credibility of the inflation targeting framework [8d9e974f]. This comes as inflation surged in September, with food inflation hitting 9.2% year-over-year, contributing to a CPI inflation rate of 5.49%, the highest in nine months [7ce46e46].
In light of recent developments, Das stated that the Indian economy is robust enough to withstand global shocks, with the current account deficit (CAD) at a manageable 1.1% of GDP, down from 6-7% in 2010-2011. He noted that India holds $675 billion in foreign exchange reserves, which provides a buffer against external pressures [01469bbc].
The Monetary Policy Committee (MPC) unanimously voted for the stance change, reflecting a growing consensus among economists who predict a 25 basis points cut in December, although some warn that ongoing food inflation could delay this decision [900f5a83][7ce46e46]. UBS has suggested that a 75 basis points repo rate cut could be on the table if inflation falls below 5% [7ce46e46]. Meanwhile, Garima Kapoor forecasts a 25 basis points rate cut in December, while CRISIL also anticipates a similar reduction but cautions about the risks posed by food inflation [7ce46e46].
Das emphasized the RBI's effective management of inflation during global crises, contrasting India's approach with that of other countries. He highlighted the importance of transforming credit delivery for small entrepreneurs and farmers through digital initiatives like UPI and ULI [01469bbc].
The RBI's cautious stance is influenced by global monetary trends, particularly the easing led by the US Federal Reserve's recent 50 basis points cut. This global context adds complexity to the RBI's decision-making as it weighs domestic inflation pressures against international developments [55ae00df].
While market participants anticipate a potential rate cut in December 2024, Governor Das has maintained a hawkish outlook, indicating that the RBI will continue to prioritize inflation control over immediate rate reductions [55ae00df]. The central bank's approach reflects a careful balancing act as it seeks to navigate the challenges posed by both domestic and global economic conditions [1fd238e1].
Overall, the RBI's decisions in the coming months will be closely monitored by economists and market participants, as they will play a crucial role in shaping India's economic landscape amid fluctuating inflation and growth forecasts [1fd238e1].