New Delhi [India], October 7 : As the Reserve Bank of India's (RBI) ongoing meeting draws attention, experts widely believe that the central bank will not announce any changes to the repo rate during this session.
However, a latest report by Yes Bank noted that before announcing the rate cut the central bank is expected to evaluate risks arising from global commodity prices, as well as inflationary pressures in the United States. Specifically, concerns around tariff policies and their impact on global supply chains may influence the RBI's stance on interest rates.
"We think that the RBI will take into consideration risks emanating from global commodity prices and risks from the US inflation (tariff walls and its impact on global supply chains) before deciding on rates" said the report.
The report suggested that while a rate cut is likely on the horizon in the coming months, the RBI will carefully consider several global and domestic factors before making any decisions.
It also predicted that when the RBI does begin cutting rates, the cycle is expected to be gradual, with reductions likely in the range of 50 to 75 basis points (bps). This indicates that the RBI may opt for a cautious approach, keeping the cuts smaller and spaced out, rather than implementing steep reductions in one go.
The report also highlighted that in the August policy meeting, the RBI had already highlighted the potential risks to food inflation, particularly from weather events such as La Nina. Excessive rainfall, which could damage crops, was flagged as a factor that could further increase food prices.
These weather-related risks require careful monitoring, as repeated food price shocks have slowed down the overall pace of disinflation in the economy.
Given these conditions, it is widely viewed that the upcoming policy decision might be too early to act on rate cuts. The report said "The upcoming policy may be a tad too early for deciding on the same".
As per the report, the RBI seems to be focusing on monitoring these external and internal risks closely before taking any action. Therefore, while no immediate changes are expected, the possibility of a rate cut in the near future remains strong, with December being a key meeting to watch for potential monetary easing.
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