RBI to Maintain Repo Rate at 6.50% in October, Expected 25bps Cut in December: Reuters Poll

By Anant Chandak

BENGALURU – The Reserve Bank of India (RBI) is anticipated to implement a modest interest rate reduction of 50 basis points over the next six months, as indicated by a majority of economists in a recent poll. Most experts believe the RBI is likely to wait until December to initiate this change instead of acting in October.

Inflation remained below the RBI’s medium-term target of 4.0% for a second consecutive month in August. While a slight increase is expected in the coming months, inflation has consistently remained within the 2%-6% comfort zone for nearly a year and is projected to continue in that range until mid-2026.

Economists noted that the RBI is not expected to follow the U.S. Federal Reserve’s recent 50 basis-point cut immediately, attributing this to a robust domestic economy and a stable currency.

The median repo rate forecasts have stayed consistent in polls conducted since April. In the recent poll conducted from September 17 to 26, over 80% of economists (63 out of 76) predicted that the RBI would maintain the repo rate at 6.50% during its meeting from October 7 to 9. Twelve economists anticipated a 25 basis-point reduction, while one expected a drop to 6.15%.

The RBI has kept the repo rate unchanged since February 2023, focusing on stabilizing the rupee through direct intervention in the foreign exchange market.

Suman Chowdhury, an economist at Acuite Ratings, remarked, “The reason why the RBI will not be in a hurry, unlike the Fed who had to cut, is because the Indian economy is still on a very strong wicket.” He added that with food inflation showing signs of decline, a rate cut seems more likely in December compared to the previous year.

RBI Governor Shaktikanta Das recently emphasized the importance of not being swayed by temporary dips in inflation, leading many to believe that the RBI will require additional reassuring inflation readings before feeling confident enough to 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, with the current members’ terms expiring on October 4.

Median forecasts suggest a quarter-point cut in the next quarter, with nearly 60% of respondents expecting rates to be at 6.25%. However, just under a third of economists maintained that rates would remain at 6.50%, while a smaller group anticipated rates at 6.15% or lower.

More than half of those providing year-end forecasts expressed that the central bank would likely wait until December to cut rates, despite other major central banks already easing their policies.

The RBI is expected to implement an additional 25 basis-point cut in February, lowering the repo rate to 6.00%. This pace of easing is notably slower compared to the Fed, which is projected to reduce rates by another 50 basis points in the next three months and by a total of 100 basis points in 2025.

Despite the recent decrease in inflation, the poll forecasted an uptick in Indian inflation, averaging 4.5% for the current fiscal year and 4.3% for the next.

Asia’s third-largest economy is projected to grow by 6.9% this fiscal year, a decline from the 8.2% growth seen in FY 2023-24. Nonetheless, it will continue to be the fastest-growing major economy.