The Reserve Bank of India (RBI) is scheduled to hold interest rates on December 6 after a number of economists in a Reuters poll revised back their predictions for the cycle's first cut by a few months, to February, due to a significant increase in consumer inflation.
In October, rising food prices caused annual retail inflation to leap above the RBI's 6% tolerance level. Shaktikanta Das, the governor of the RBI, whose term is probably going to be extended, recently stated that it would be dangerous to decrease rates too soon.
This occurred even though top government ministers called for interest rate cuts to help a faltering economy and the RBI changed its monetary policy stance to "neutral" in October.
In a Nov 18-27 Reuters survey, 62 of 67 analysts expected that the RBI's benchmark repo rate will remain at 6.50 percent at the end of its Dec. 4-6 meeting. Five expect a 25 basis point (bp) decrease.
This represented a departure from predictions in a poll published last month, in which a narrow majority of experts predicted a decrease to 6.25 percent by December.
"If Governor Das stays on, policy relaxation is not in the cards for the time being." Shilan Shah, Capital Economics' deputy chief emerging markets economist, stated that Das has been one of the panel's more hawkish members in recent months.
"That said, there is mounting evidence that the economy is cooling, and we believe inflation will fall in the coming months. That will pave the way for policy relief."
Twenty-one of the 48 common contributors who offered rate projections last month and this month shifted their forecast for the first rate drop from December to February or later.
HSBC chief India economist Pranjul Bhandari, who revised her forecast to February, stated: "In the past, the RBI used to frequently look through vegetable price inflation, but that is no longer the case."
"Back-to-back (inflation) shocks appear to have made officials wary of speedy disinflation of vegetable prices. It may want to wait and relax... at the February and April meetings."
The poll's median projection anticipated the RBI cutting interest rates by half a point to 6% by the end of June 2025, a view that remained unchanged from last month. This is projected to be followed by a lengthy hiatus until at least early 2026.
Such an easing cycle would begin far later and be much more gradual than other major central banks, including the US Federal Reserve, which is forecast to drop rates again in December and by at least 50 basis points in 2025.
"If the Fed rate drop cycle is substantially shallower than projected due to expansionary fiscal measures and an increase in global trade barriers, this will constrain the pace of rate cuts next year for developing market central banks," said Gaura Sengupta, chief economist at IDFC Bank.
Donald Trump, the US president-elect, has suggested imposing comprehensive tariffs of at least 10% on all imports when he returns to the White House in January.
"Conversely, there could be downside risk to our terminal rate forecast if domestic growth conditions weaken more than expected," added Sengupta.
The third-largest economy in Asia is expected to grow by 6.8% this fiscal year (FY) and 6.6% the following, which is a significant decline from the above 8% growth saw in FY 2023–2024.
