Smart GDP growth casts shadow over December rate cut

The Reserve Bank of India’s (RBI's) Monetary Policy Committee (MPC) is widely expected to keep the policy rate unchanged on 5 December, even as a sizable minority of economists argues that the space created by softening inflation and moderating nominal growth warrants another rate cut.

- Subhana Shaikh

The RBI is expected to maintain its 'neutral' stance.

A Mint poll of 13 economists shows nine expecting a pause, while four of them are anticipating a 25 basis points cut to 5.25%, underscoring how finely balanced the December decision is likely to be. (One basis point equals 0.01%.)

The divergence of views reflects a rare point for India’s macro economy with record-low inflation, surprisingly strong real gross domestic product (GDP) prints, weakening nominal GDP growth, and emerging external sector risks, all at once.

The MPC is scheduled to announce its policy decision after its 3-5 December meeting. The central bank is also expected to maintain its ‘neutral’ stance, which allows it to move in either direction.

For the quarter ended September, the Indian economy posted a surprising six-quarter high growth rate of 8.2%, significantly above the RBI's 7% projection and 7.2% median estimate in a Mint poll of 15 economists. This growth was also higher than 5.6% in the same quarter last year, and 7.8% a quarter ago.