A high September inflation print and rising geopolitical concerns have reduced the probability of a rate cut in December to 30 percent from 75 percent in an earlier MC poll, pushing the prospects of a reduction in the February meeting, a Moneycontrol poll of 18 economists found.

“We think with the current print being hot and with an unlikely major fall in Oct'24 CPI, which will be the only inflation figures Reserve Bank of India will have before the December MPC meeting, it will be difficult to cut rates in the next policy meeting,” said Sujan Hajra, chief economist, Anand Rathi Shares and Stock Brokers.

RBI’s Monetary Policy Committee held the policy rate at 6.5 percent for the tenth consecutive time at its meeting in October.

Most economists (10 of 17) in the MC poll contend it will likely do the same in the December meeting, delivering only one cut in February instead of the two earlier envisaged.

“October CPI inflation is tracking closer to 6% due to a rise in food prices. For RBI to be comfortable to cut interest rates in the December policy, food prices will need to see a sharp reduction in November and extend into December. In case there is only a moderate correction in food prices, then the start of the rate cut cycle could be delayed to February,” said Gaura Sengupta, chief economist of IDFC First Bank.

The MC poll of 17 economists found that the policy rate will likely reduce to 6.25 percent by the end of this fiscal, with a more aggressive easing to 5.75 percent by the end of FY26.

However, six of the 17 economists predict that the central bank may announce a rate cut at the December meeting.

“A rate cut and consequent efficient transmission is necessary to augment the multiplier effects of many fiscal policies like PLI and credit guarantee schemes for MSMEs,” said Debopam Chaudhuri, chief economist, Piramal Group.

Changing probabilities

A Moneycontrol poll conducted on September 19 of 17 economists, after the Fed’s decision to cut its interest rate by 50 bps, pegged the December rate cut probability at 75 percent and assigned a 75 percent chance of another cut in February.

The current poll pegs the probability of a February cut at 70 percent.

“The timing of the RBI rate action now hinges on whether commodity price inflation sustains and on the other hand, if growth slowdown in Q2 FY25 spills over into the second half of the year,” said Sakshi Gupta, principal economist, HDFC Bank.