RBI has room to cut rates, can't predict timing: Economists

MUMBAI: India's record low retail inflation of 0.25% is 'too low to ignore,' economists said after the latest October print, with some of them pencilling in a cut in policy rates in the upcoming December review by the central bank's rate-setting panel.

Yet, what's lengthening the odds on an immediate mathematically driven cut-the latest print is significantly below Mint Road's 4% legal mandate for consumer inflation-is the trajectory of second-quarter economic growth. Sustained robust growth might prompt the Reserve Bank of India (RBI) to prolong the pause, although economists are near-unanimous that the precipitate decline in the pricing print gives additional policy space to the committee tasked with fixing the rates.

"While the inflation trajectory is likely to remain benign, the RBI will need to filter the festive and GST-related demand from the cyclical recovery," said Upasna Bharadwaj, chief economist, Kotak Mahindra Bank. "We remain skeptical on the sustainability of the recent pickup in economic activity and, hence, see some room for further monetary easing."


Bharadwaj, however, did not specify a timeline for the rate easing to begin. Among economists, three expect a cut, while four have acknowledged space for easing but refrained from giving a timeline.

India's second-quarter growth data would be published on November 28-a week before the monetary policy committee (MPC) meets on December 5.

Economists say GDP for Q2 is expected at 7.3%-7.4%. While the impact of GST cuts would be visible in Q3, sustainability of the pickup in consumption would be a key monitorable. Additionally, a rate cut would be more likely if punitive US tariff pressures continue and if there is no concrete trade deal soon with the US.

Rates & Liquidity
The RBI has lowered policy rates and cash reserve ratio (CRR) by 100 basis points each to 5.5% and 3%, respectively, since the beginning of the rate easing cycle in February to boost growth, considering that inflation was below the 4% target. It has projected real GDP at 6.8% and while the inflation forecast for the whole of FY26 is at 2.6%, with a back-loaded climb in the metric.

However, the record low print in October, market participants believe, could prompt RBI to further lower inflation projections and slightly revise the gro-wth forecast in the December policy.

SBI, which has called for a cut in previous policies, expects a status quo on rates in December, chairman CS Setty said in its Q2 results press conference.