Bank of America, JP Morgan RBI forecast: After the Reserve Bank of India (RBI)- led Monetary Policy Committee (MPC) decided to keep the repo rate unchanged at 6.50 per cent, JP Morgan said that MPC delivered a dovish hold, injected liquidity by cutting banks’ cash reserve ratio (CRR) by 50 bps and opened the door to a February cut. Further, a similar rate cut call is projected by Bank of America (BofA Securities) as well. “The recent pick up in October CPI inflation at 6.2 per cent notwithstanding, we believe monetary policy has pivoted further to support growth, as medium-term inflation forecasts for both the RBI and for BofA are broadly aligning with the 4 per cent target on a durable basis. With November CPI inflation print likely coming in below 6 per cent, hence, we maintain our rate cut call of cuts beginning in February MPC meeting, and continue to expect 100 bp of cuts in the cycle, given a durable alignment of headline CPI close to 4 per cent through 2025,” said Rahul Bajoria, hHad of India and ASEAN economic research, BofA Securities. He added that this will bring the repo rate to 5.50 per cent by end-2025, close to the neutral rate. “If inflation comes off below 5 per cent in November print next week, risks of an intermeeting rate cut would rise,” he noted.
The RBI MPC, on Friday, decided to keep the key lending rate unchanged at 6.5 per cent and the CRR has been now cut by 50 bps to 4 per cent from 4.5 per cent in a bid to boost liquidity in the financial system. RBI Governor Shaktikanta Das elaborated on the rationale behind maintaining the status quo. The MPC observed that India’s near-term inflation and growth outlooks have worsened slightly since the October policy review. However, economic activity is expected to improve, supported by rising business and consumer confidence, as indicated by the Reserve Bank’s surveys.
The JP Morgan analysis report stated that while it did not rule out the cut, the brokerage firm had pointed out that it would have been odd for the RBI to discernibly mark up its inflation forecast and cut at the same meeting. The RBI marked up its current quarter inflation forecast by 90 bps from 4.8 per cent to 5.7 per cent (JP Morgan: 5.8 per cent) and full year 2024-25 CPI to 4.8 per cent from 4.5 per cent.
JP Morgan said that the policy clearly opened the door for a February cut. First, the RBI projects headline CPI at 4.5 per cent, 4.6 per cent and 4 per cent in the first three quarters of the 2025 calendar year – helped by the disinflation induced by the kharif and rabi harvests. “If inflation tracks the RBI’s projections until February – and the Committee has more conviction in February that inflation is headed to the 4 per cent handle – a February cut is very much on the table,” the JM Morgan report stated. Second, the RBI sharply marked down its GDP forecast for this fiscal year to 6.6 per cent from 7.2 per cent. If growth is tracking in the mid-6 per cent range and inflation is expected to soften to the 4 per cent handle, JP Morgan said, a February easing is on the cards.
Shreya Sodhani, Regional Economist, Barclays, also maintained, “Going forward, as the worst of quarterly growth reading and peak inflation seem to be behind us, we expect the MPC to derive comfort from the same and commence rate easing from February 2025, cutting the policy repo rate by 25bp, as inflation moderates closer to target and growth may still fall short of the MPC’s forecast. We see a cumulative 100bp of rate cuts in the easing cycle, taking the policy repo rate to 5.5 per cent by March 2026. Post February 2025, we expect three more cuts of 25bp each in April, August, and February 2026.”
Elara Securities also voiced a February rate cut call. Garima Kapoor, Economist and Executive Vice President, Elara Securities, said, “We expect the MPC to cut policy repo rate by 25bps in Feb 2025 and expect a total of 75bps rate cut this easing cycle. The CRR cut following the change in stance in the previous meeting paves the way for further policy easing in the form of rate cuts.”