RBI Repo Rate Cuts Likely Delayed to 2025 as Inflation Hits Nine-Month High

Surge in Inflation Raises Concerns
 

India's retail inflation surged to 5.49% in September 2024, a sharp rise from 3.65% in August, driven by food prices and an unfavorable base effect. This exceeded economists' forecast of 5.04%, challenging the Reserve Bank of India’s (RBI) expectations. The central bank held the repo rate steady at 6.5% in its October meeting, signaling caution as inflation remains above its comfort zone.

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Economists Push Rate Cut Forecast to 2025
 

Economists believe the next repo rate cut may not happen until H1 2025. Aditi Nayar, Chief Economist at ICRA, stressed that a December 2024 rate cut would require inflation to drop below 5% or growth to fall significantly short of expectations. Similarly, Upasna Bhardwaj from Kotak Mahindra Bank warned that high food inflation could keep the Monetary Policy Committee (MPC) cautious, despite favorable prospects from rabi sowing.

Global Risks Add Complexity to RBI’s Decisions
 

Madhavi Arora of Emkay Global noted that the RBI will remain on a wait-and-watch approach, balancing inflation risks with global volatility. The US Federal Reserve’s rate cut cycle adds uncertainty, with lingering risks from geopolitical tensions and volatile exchange rates complicating the RBI’s policy options.

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Rupee Weakens as Inflation, Outflows Hit Sentiment
 

The Indian rupee depreciated to 84.067 against the US dollar, near its record low, driven by foreign outflows and regional currency weakness. Jigar Trivedi from Reliance Securities expects further depreciation, with the rupee possibly breaching 84.10, though RBI intervention could stabilize the currency.

Bond Yields Hold Despite Inflation Spike
 

The 10-year government bond yield remained stable at 6.7755% despite higher inflation. Falling oil prices offered some relief, supporting market sentiment and easing concerns about future inflationary pressures.

Conclusion: Policy Easing Hinges on Data and Global Stability

With inflation above target and global risks persisting, the RBI is likely to delay rate cuts until 2025. Economists expect future decisions to depend on inflation easing, GDP performance, and geopolitical developments. Until then, the RBI’s focus will likely remain on maintaining financial stability amidst evolving uncertainties.

Also Read: ECB Poised for Surprise Rate Cut Amid Growth Concerns