RBI Set to Pause in October, But a Policy Shift Looms Ahead: BofA Securities

Introduction

 Bank of America (BofA) Securities, in its latest report, predicts that the Reserve Bank of India (RBI) is likely to maintain its current policy rate in the upcoming October Monetary Policy Committee (MPC) meeting. The central bank is expected to keep the repo rate unchanged at 6.50%, continuing its pause for the tenth consecutive meeting. However, BofA suggests that a shift in the central bank's monetary policy stance may be on the horizon.

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No Rate Change Anticipated in October

BofA Securities emphasized that the RBI's near-term outlook on growth and inflation remains upbeat, reducing the likelihood of any immediate policy changes. In recent speeches, RBI Governor Shaktikanta Das has firmly rejected any short-term rate adjustments, despite global monetary easing cycles. The RBI’s projections for FY25 include 7.2% economic growth and 4.5% inflation, which appear to be on track, as confirmed by the RBI's latest bulletin.

Potential Shift in Stance Toward Neutral

While the repo rate is expected to stay steady, BofA Securities indicates that the October meeting could signal a change in the RBI's stance. Current economic data presents mixed signals, with growth risks tilted to the downside and inflation inching closer to the central bank’s target on a four-quarter rolling basis.

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Gradual Slowdown in Growth and Inflation Forecasts

According to BofA Securities, India’s economic growth is expected to slow down gradually, with a potential decline in inflation as well. This may open the door for rate cuts starting in December 2024, with a total of 100 basis points in reductions forecasted by the end of 2025. However, these cuts are not anticipated before late 2024, as the RBI remains cautious and committed to data-driven decisions.

Growth and Inflation Projections Remain Steady

BofA Securities does not foresee significant changes to the RBI's growth and inflation forecasts in the near term. While some downward revisions to growth estimates for the second quarter of FY25 are possible due to weaker data, the central bank is expected to maintain its overall 7.2% growth projection for the year.

Conclusion: A Shift in Stance May Precede Rate Cuts

In conclusion, while the RBI is expected to keep the repo rate unchanged at its October MPC meeting, a shift in stance toward a neutral position is becoming more likely. With slowing economic growth and easing inflation pressures, the groundwork for future rate cuts is being laid, though these cuts are not expected before December 2024. Market participants will closely monitor the RBI’s future policy moves, particularly as the central bank navigates a changing domestic and global economic landscape.

 Also Read:RBI Monetary Policy Highlights: Shift to ‘Neutral’ Stance Signals Potential Rate Cuts