India’s October Consumer Price Index (CPI) inflation of 6.21% had economists revising their rate cut outlook, with consensus forming around early 2025. This month’s inflation exceeded both market and Reserve Bank of India (RBI) projections, with core inflation reaching a 10-month high of 3.7%.
The data, combined with sluggish industrial growth concerns as the Index of Industrial Production (IIP) rose only 3.1% in September, has economists anticipating that a rate cut in December is highly unlikely.
Devang Shah, Head of Fixed Income at Axis Mutual Fund, ruled out a rate cut in December, citing that inflation remains well above RBI targets.
“With this CPI print and as most panellists said that we will be significantly higher compared to the RBI projection on CPI, a rate cut in December is ruled out. February onwards, we see a very high probability of a rate cut in every policy. So February is where I pencil in the first rate cut,” Shah highlighted during a CNBC-TV18’s special coverage.
Kanika Pasricha, Chief Economic Advisor at Union Bank of India, also leaned towards a February rate cut, although she saw GDP projections potentially being revised downward from 7.2% to around 7% due to weaker second-quarter performance.
Also read: Economists flag concerns about high inflation, sluggish industrial growth in October
“From 7.2% GDP, a downward revision is likely, but maybe they retain the golden 7% mark because in the third and fourth quarters we may get back to the 7% threshold on GDP growth numbers,” Pasricha stated. She added that her FY25 growth forecast stands slightly lower at around 6.8-6.9%, while the RBI may maintain its 7% outlook.
On inflation, Pasricha noted, “We are at 4.7% but I don’t think that’s going to be a big worry for the RBI because our last quarter number is still tracking close to RBI’s 4.2%.”
Nikhil Gupta, Chief Economist at Motilal Oswal Group, echoed Shah’s February outlook, expecting “the first rate cut in February 2025 or later,” while Sakshi Gupta, Vice President & Senior Economist at HDFC Bank, took a slightly more cautious stance, hinting at a possible delay due to global developments.
“I want to say first rate cut in February, but I think increasingly, with what’s happened globally, and the move in the rupee, I’m going to be out of consensus and say April 2025,” she noted.
The combination of high inflation, moderate GDP growth expectations, and fluctuating global markets suggests that while a rate cut is on the horizon, the RBI may proceed cautiously.
February has emerged as a key date for many analysts, though some suggest that global factors may delay action until later in 2025.
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