Feb rate cut may bring major GDP downgrade: Union Bank report

The Reserve Bank of India's (RBI) decision to keep the repo rate unchanged and shift its policy stance to neutral highlights inflation as the central bank's predominant concern. According to a research report by Union Bank of India (UBI), the RBI's Monetary Policy Committee (MPC) remains strongly focused on inflation dynamics, which could delay any rate cuts in the near term. The report mentions that the next two to three inflation data releases are likely to hover around the 5% mark before inflationary pressures start to ease, possibly by the end of the third or fourth quarter of FY25.

- TBG NETWORK

Union Bank of India's report is skeptical about the likelihood of a rate cut in December, citing the upward trend in inflation. The bank maintains its forecast for a potential rate cut in the final quarter of FY25, or perhaps during the February 2025 monetary policy cycle. This potential rate cut, however, would come with conditions. The report suggests that a downward revision of India's GDP forecast, currently at 7.2% for FY25, would likely accompany the policy change. It adds that the RBI will need to significantly lower its growth expectations before initiating a rate-cutting cycle.