RBI’s Monetary Policy: Insightful Expectations from Industry Leaders

The Reserve Bank of India (RBI) is set to unveil its next monetary policy review, and industry experts are closely watching the developments. With the repo rate currently at 6.5%, key stakeholders from the financial and economic sectors have shared their insights, highlighting the potential paths for India’s monetary policy amid evolving economic challenges.

RBI Likely to Maintain Status Quo, Says Ashok Mittal

Mr. Ashok Mittal, MD & CEO of BillMart FinTech, anticipates that the RBI will maintain the repo rate at 6.5% in the upcoming policy review. However, he suggests that a weaker-than-expected GDP performance in Q2 FY25 might open the door for a rate cut in early 2025.

“We expect the Reserve Bank of India (RBI) to maintain the repo rate at 6.5% in its upcoming monetary policy review. However, given the weaker-than-expected GDP data, there is a growing possibility of a rate cut in February 2025,” said Mr. Mittal.

Economic Slowdown in Q2 FY25

India’s GDP growth slowed to 5.4% in Q2 FY25, down from 6.7% in Q1. Mr. Mittal highlights the economic challenges underlying this slowdown, though he remains optimistic about a potential recovery in the latter half of the fiscal year.

“The Q2 FY25 GDP growth slowdown to 5.4%, from 6.7% in Q1, highlights economic challenges, but the second half of the fiscal year may witness a recovery. This could be driven by robust agricultural performance supported by favorable monsoons, increased government spending, and rural welfare initiatives,” he noted.

Despite these optimistic factors, Mr. Mittal pointed to inflationary risks and global economic uncertainties that might compel the RBI to consider a rate hike early next year.

Madan Sabnavis on Inflation and Policy Projections

Mr. Madan Sabnavis, Chief Economist at Bank of Baroda, shares a similar sentiment about the RBI maintaining its current stance. He cites inflation trends and global uncertainties as critical factors influencing the decision-making process.

“Given the rather uncertain global environment and the possible impact on inflation and the fact that currently inflation has been averaging close to 5.9% in the last two months, a status quo on repo rate will be the logical outcome from the policy,” said Mr. Sabnavis.

Inflation and Liquidity Dynamics

Mr. Sabnavis also emphasizes that the RBI’s revised projections for inflation and GDP will be a focal point in the policy announcement. While liquidity remains tight, the upcoming advance tax payments in December may add to the pressure.

“There could be changes in RBI projections for both inflation and GDP as inflation has been higher so far than the RBI forecast for Q3 and GDP growth is expected to be lower in Q2. While liquidity is tight presently, any measure to augment the same will be indicative of the RBI view on the permanency of this situation.”

Key Factors Influencing the Policy Decision

The upcoming monetary policy will hinge on multiple factors, including:

1. Inflation Trends: With inflation averaging 5.9% recently, the RBI will need to balance growth aspirations with price stability.
2. GDP Projections: Q2 FY25’s lower-than-expected growth performance may prompt the RBI to reassess its economic outlook.
3. Liquidity Management: Tight liquidity conditions, compounded by advance tax outflows in December, may lead to temporary measures by the central bank.
4. Global Uncertainty: External economic conditions, including geopolitical risks and oil price volatility, will remain critical to RBI’s policy approach.

Conclusion: What Lies Ahead for Monetary Policy?

Both Mr. Ashok Mittal and Mr. Madan Sabnavis agree that the RBI is likely to maintain the repo rate in its December review. However, the economic slowdown and inflationary pressures introduce a complex dynamic that could influence future policy directions.

As stakeholders await the policy announcement, all eyes are on the RBI’s revised projections and measures to address liquidity challenges, which will provide deeper insights into the central bank’s stance on fostering sustainable growth while managing inflationary risks.

Stay tuned for updates as the monetary policy unfolds, shaping India’s economic trajectory in the months to come.