Mumbai: As calls for a rate cut grow louder as inflation eases in November amid concerns that economic growth will slow, economists see a smaller window for traditional rate cuts next year as global dynamics become more fluid. Most expect the central bank to begin a shallow rate cut cycle with a 25 basis point rate cut at its February 2025 policy meeting.
India’s November headline Consumer Price Inflation (CPI) rose to 5.48 percent year-on-year, down from October’s peak of 6.2 percent. This latest print is back within the upper tolerance limit of 6 percent but still far from the central bank’s 4 percent target. Food inflation remained high at 9 percent in November, with tightening in vegetable inflation and rise in edible oil inflation prompting caution. On the other hand, the Index of Industrial Production (IIP) rose by 3.5 percent year-on-year in October compared to 3.1 percent in September. Most major industrial sectors have performed well.
The RBI MPC will hand over the November and December inflation prints and the FY26 budget at the February 2025 policy meeting. Headline inflation is expected to moderate once the weather-related impact on the food basket passes, returning to the 4-5 percent range by then. Global developments remain a wildcard as the US government takes office in mid-January 2025. Subsequent protectionist/inflationary policy announcements are likely to impact the dollar and US rates, with Asian markets expanding, including rupee and INR market rates. This week Bharu has fallen to a new record.
Madhavi Arora, chief economist at MK, said, “Inflation easing does not guarantee a deep linear rate cut cycle. Policy trade-offs are intensifying with a tougher and smaller window for conventional rate cuts as global dynamics turn more fluid. ”
“Increasing foreign exchange pressures and the rising cost of foreign exchange interventions need to be weighed before cutting rates further. We do not rule out a cut in February 2025, for now, but closer to the policy window, especially the new It will be more convenient to make a firm call with the MPC sort,” Arora added.
“In our view, if headline CPI inflation comes down to 5 per cent or less by December 2024, the chances of a rate cut by the MPC in its February 2025 meeting will be very high. We maintain a baseline expectation of two rate cuts. 25 bps each in the expected rate cut cycle,” Aditi Nair said. , Chief Economist and Head – Research and Outreach, said. ICRA LIMITED.