Economists torn between rate cut and pause in next MPC

While participants in the domestic financial market are expecting a 25 basis-point policy repo rate cut in the December meeting of the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI), economists remain torn between a reduction in rate cut and a pause.

- BS REPORTER

In a panel discussion with Tamal Bandyopadhyay, with its title being “Taking India to a higher growth trajectory amid global headwinds”, on Wednesday, Samiran Chakraborty, managing director and chief economist, India, Citigroup, said: “We thought there was space for a rate cut both in the August and October policy meetings from the inflation standpoint. In December, the rate cut is not about space but the need for a rate cut. So we have to observe whether between now and December there is any discernible sign of any growth slowdown or not. And that's why I am hiding behind wait and watch.”

The MPC kept the repo rate unchanged at 5.5 percent in its October meeting, while striking a dovish tone and hinting that inflation risks were ebbing faster than anticipated.

The last round of reduction in the inflation projections for the current year (by RBI) and for the first half of next year has come in because of (cuts in) GST (goods and services tax), which is a policy change lowering the prices. It is going to bring with it better demand. So in this case, I am quite torn. I think a rate cut could have happened earlier, but as we go closer toward FY27, I think it's going to be more and more difficult to cut rates. So I am really on the fence for December,” said Aditi Nayar, chief economist, Icra.