No surprises

A rate cut is in the offing in the February 2025 meeting if CPI prints move in sync with the MPC's estimates

- ADITI NAYAR

THE MONETARY POLICY Committee's (MPC) penultimate meeting for FY25 bore no surprises, with a status quo on the policy rates and the stance. However, there was a shift in the voting pattern to 4:2 on the former, with one additional external member opting for a rate cut as compared to the previous meeting. This was also not unexpected, given the sharp undershooting in the Q2 FY25 GDP growth prints.

The tone of the policy document as well as the Reserve Bank of India (RBI) governor's statement was rather mixed, with the unfavorable trends in the recent consumer price index (CPI) inflation and GDP growth numbers complicating the situation. This raises the importance of the incoming data over the next few months, until the next MPC meeting in early February 2025.

As was largely expected, the committee cut back the GDP growth projections for FY25 quite sharply to 6.6% from 7.2% earlier, with the sizeable undershooting in the Q2 FY25 GDP print weighing on the forecast. While the policy document highlighted that the outlook is favorable, it scaled back its growth projections for Q3 and Q4 FY25 by 60 and 20 basis points (bps) respectively, and for Q1 FY26 by 40 bps. The MPC also issued a fresh forecast for Q2 FY26, at 7.3%, on the low base of Q2 FY25.