RBI to Reveal Interest Rate Decision Amid Economic Challenges on December 6, 2024

The Reserve Bank of India (RBI) is set to reveal its decision on interest rates following a three-day meeting of the monetary policy panel. This comes amid concerns over high inflation and sluggish GDP growth. Experts suggest that the central bank may maintain the current short-term lending rate, known as the repo rate, while possibly adjusting the cash reserve ratio (CRR) due to mixed economic signals.

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Governor Shaktikanta Das is leading the six-member Monetary Policy Committee (MPC) in this meeting, which began on Wednesday. This session marks the final MPC meeting of Das's current term, which concludes on December 10. The RBI has kept the repo rate steady at 6.5% since February 2023, following a series of hikes that began in May 2022.

Monetary Policy and Inflation

The government has tasked the RBI with maintaining consumer price index (CPI) inflation at 4%, with a margin of 2% on either side. Retail inflation recently exceeded the RBI's upper tolerance level, reaching a 14-month high of 6.21% in October, primarily due to rising food prices. This follows inflation rates of 5.49% in September and 4.87% a year earlier.

Suman Chowdhury, Executive Director and Chief Economist at Acuitè Ratings, noted that economic prospects are uncertain regarding growth and inflation. He suggested that a CRR reduction could inject liquidity into the banking system, supporting economic activity without directly impacting the repo rate.

Economic Growth Concerns

India's economic growth slowed to a near two-year low of 5.4% in the July-September quarter of this fiscal year, attributed to weak performance in manufacturing and mining sectors. In contrast, GDP had grown by 8.1% during the same period in the previous fiscal year.

A report by Emkay Global Financial Services highlighted that significant GDP underperformance has intensified policy trade-offs as the economy appears to be in a stagflationary state. Despite potential revisions to growth and inflation forecasts, an immediate rate cut may be challenging for the MPC to justify.

Monetary Policy Committee Members

The MPC comprises Nagesh Kumar from the Institute for Studies in Industrial Development, Saugata Bhattacharya, an economist, Ram Singh from Delhi School of Economics, Rajiv Ranjan from RBI, Michael Debabrata Patra, Deputy Governor of RBI, and Governor Shaktikanta Das.

In an off-cycle meeting in May 2022, the MPC raised the policy rate by 40 basis points. Subsequent meetings saw further increases until February 2023, resulting in a cumulative rise of 250 basis points between May 2022 and February 2023.

The upcoming Monetary Policy Statement by RBI Governor Shaktikanta Das is scheduled for December 6, 2024, at 10:00 am, as announced on social media platform X.