By Anup Roy
Copyright indiatimes
ReutersThe Reserve Bank of India seal is pictured on a gate outside the RBI headquarters in Mumbai
The Reserve Bank of India’s interest rate decision on Wednesday will likely be a close call, with policymakers facing multiple reasons to lower borrowing costs as inflation stays low and economic growth takes a knock from high US tariffs.While a majority of economists — 24 of 38 surveyed by Bloomberg News — predict the repurchase rate will remain on hold at 5.5%, 14 expect a quarter-point reduction, citing India’s darkening growth prospects. Even many of those forecasting a hold say there’s justification to ease.The six-member monetary policy committee, led by Governor Sanjay Malhotra, will need to juggle a number of competing objectives this week. Inflation, which is hovering near the lower end of the 2%–6% target band, is expected to ease further after recent tax cuts, while growth is likely to face a hit from US President Donald Trump’s 50% export tariffs. At the same time, the rupee’s slump to a record low and Malhotra’s cautious approach to rate cuts raises the hurdles for easing. The central bank lowered rates by 100 basis points this year but paused at the last MPC meeting in August.BloombergRBI Likely to Keep Interest Rates on Hold“We believe it is a close call – with a risk of a dovish pause pushing the cut down to the December meeting,” Aastha Gudwani, an economist at Barclays Plc., wrote in a note to clients. “The overhang of neutral-to-hawkish communication in the past may warrant a calibrated approach than an outright cut.”Live EventsThe governor’s commentary and outlook on economic growth will be closely watched for signals of future monetary policy. Economists see scope for the repo rate to drop as low as 5% in this cycle. Here’s what market watchers will keep an eye on when Malhotra announces the rate decision in a televised address at 10 a.m. in Mumbai: Inflation and GrowthThe RBI is likely to keep its growth forecasts unchanged, while trimming its inflation projections.Even though inflation ticked up in August to 2.07%, the outlook remains benign, supported by above-normal monsoon rains and cuts in the consumption tax. The RBI had predicted inflation of 3.1% for the current fiscal year that started in April. Gaurav Kapur, an economist with IndusInd Bank Ltd., estimates average inflation of about 2.7% for the year.The tax cuts are also expected to help offset the drag from tariffs and keep growth near the upper end of the government’s 6.3%–6.8% forecast range, a top official said. The RBI’s projection is for 6.5% growth this fiscal year. BloombergMarketsIndian bonds have been stuck in a narrow trading range in recent weeks, with analysts arguing that only strong dovish signals from the central bank can spark a rebound.Traders remain cautious ahead of the October policy meeting, having been wrong-footed by the RBI’s recent moves. The central bank’s shift to a neutral policy stance in June, followed by a rate hold in August despite easing inflation, signaled a higher threshold for future rate cuts. Since the June meeting, the yield on the benchmark 10-year bond has climbed more than 30 basis points.“Our view is for the RBI holding rates steady but with a dovish tilt,” said Abhishek Upadhyay, an economist with ICICI Securities Primary Dealership Ltd. “A dovish pause may be the best option when it comes to transmission, both in the bond market as well as the banking channel.” Traders will also watch for the governor’s comments on the currency amid the trade tensions. Analysts at Australia and New Zealand Bank Ltd. suggest the RBI may be tolerating the rupee’s weakness as a deliberate policy adjustment to protect the competitiveness of Indian exporters.Add as a Reliable and Trusted News Source Add Now!
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