New Delhi [India], December 8 : The Reserve Bank of India (RBI) is anticipated to lower repo rates in February 2025, and this decision is expected to be unaffected by the rupee’s depreciation against the dollar, according to a report by SBI Research. The report was released on the same day the RBI announced its monetary policy and predicts a total reduction of 75 basis points in repo rates by February 2025.
The report, authored by Soumya Kanti Ghosh, Group Chief Economic Adviser at SBI, noted that past instances, such as in 2018, showed that the RBI chose not to hike rates despite significant pressure on the rupee. The RBI’s monetary policy committee has opted to maintain the repo rate at 6.50 percent for the eleventh consecutive time, although this decision was not unanimous, with two new members favoring a 25 basis points reduction.
The committee unanimously decided to uphold a neutral monetary policy stance, focusing on achieving a sustainable alignment of inflation with targets while supporting economic growth. Additionally, the RBI has revised its inflation forecast for 2024-25 upward by 30 basis points to 4.8 percent, in light of recent inflation trends. India’s retail inflation reached 6.21 percent in October, exceeding the RBI’s upper tolerance limit of 6 percent, primarily driven by rising food prices, particularly for vegetables, fruits, and oils.
The SBI Research report indicates that the inflation outlook will be influenced by the trajectory of food prices, noting potential easing in vegetable prices but warnings from adverse weather and rising international agricultural costs. Furthermore, the RBI has significantly reduced its real GDP growth projection for 2024-25 from 7.2 percent to 6.6 percent, citing balanced risks.
This downward forecast isn’t unprecedented, as similar revisions occurred in 2021-22 and 2022-23, averaging a 90 basis points decrease. In this fiscal year, the growth forecast was adjusted upward from 7 percent to 7.2 percent, marking the first time in five years that the RBI has shifted its estimates up and then down to 6.6 percent, indicating an acknowledgment of overshooting growth predictions. SBI Research anticipates that the GDP growth for 2024-25 will fall below the RBI’s estimate, projecting it to be 6.3 percent.
