Will RBI Reduce Policy Repo Rate by 25 Basis Points on December 5?
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Synopsis
As Indian inflation continues to lag behind target levels, HSBC forecasts a significant policy shift from the RBI, with a potential rate cut of 25 basis points during the upcoming MPC meeting. This move, aimed at supporting economic growth, reflects current trends and consumer behavior in India's financial landscape.
Key Takeaways
- RBI likely to cut policy repo rate by 25 basis points.
- Inflation is expected to stay below target.
- Current GDP growth reported at 8.2 percent YoY.
- GST cuts and government spending boost growth.
- Lower-income states are growing faster.
New Delhi, Dec 1 (NationPress) With inflation expected to stay significantly below target in the coming months, HSBC Global Investment Research indicated on Monday that the RBI is likely to lower rates by 25 basis points in its upcoming monetary policy committee (MPC) meeting on December 5, adjusting the policy repo rate to 5.25 percent.
Current growth has been robust, aided by the prior increase in government spending and a stimulus in retail spending from GST reductions.
However, the November Flash manufacturing PMI (56.6) suggests that the boost from GST may have reached its zenith, with overall new orders appearing subdued, according to the report.
“While growth is strong at the moment, we anticipate a potential softening in the March 2026 quarter as fiscal efforts turn contractionary and export growth slows. We expect the RBI to adopt a more accommodative stance during the December policy meeting,” the report stated.
The GDP growth for the July-September quarter was reported at 8.2 percent YoY, surpassing the previous quarter's 7.8 percent and exceeding our above-consensus estimate of 7.5 percent. Additionally, GVA growth was recorded at 8.1 percent, while nominal GDP experienced an 8.7 percent increase.
The GDP performance significantly exceeded our forecasts, with several factors contributing to this strength, as highlighted in the report.
First, the implementation of GST rate cuts on September 22, with the announcement made earlier on August 15, likely spurred production in anticipation of heightened consumer demand. Secondly, our recent analysis shows that lower-income states are beginning to grow, even outpacing higher-income states.
This trend may further elucidate the resilience of India's growth momentum, as national GDP is the aggregate of state-level Gross State Domestic Products (GSDP).
According to the report, India’s growth has remained stable despite the 50 percent reciprocal tariff imposed on its exports by the US since August.
Point of View
It's essential to recognize the broader implications of these potential rate changes. The current economic landscape, marked by strong growth yet facing headwinds from external tariffs, necessitates a balanced approach. The RBI must navigate these challenges while fostering an environment for sustained growth.
NationPress
01/12/2025
Frequently Asked Questions
What is the anticipated policy rate cut by RBI?
HSBC predicts a 25 basis point cut in the policy repo rate during the MPC meeting on December 5.
How does inflation affect monetary policy?
Inflation levels significantly influence monetary policy decisions, as central banks like the RBI adjust rates to manage economic stability.
What factors contribute to India's GDP growth?
India's GDP growth is influenced by government spending, GST cuts, and emerging growth in lower-income states.
What does a cut in the policy repo rate mean?
A cut in the policy repo rate typically signals a more accommodative monetary policy, aimed at stimulating economic growth.
How does the US tariff impact India?
The 50 percent reciprocal tariff imposed by the US on Indian exports poses challenges, yet India’s growth remains resilient.
