The Reserve Bank of India (RBI) is expected to keep interest rates unchanged in its upcoming monetary policy review, even as it continues with a growth-supportive stance. Economists believe that while India’s economy is rebounding faster than anticipated, persistently high retail inflation leaves little room for further rate cuts.
Growth Recovery Meets Inflationary Pressure
Recent official data shows India’s GDP shrank by 7.5% in the July–September quarter, a sharp improvement from the record 23.9% contraction in April–June at the height of the pandemic-induced slowdown. The quicker-than-expected recovery has encouraged optimism about demand revival.
However, inflation has emerged as the key constraint. The Consumer Price Index (CPI) rose to 7.61% in October, marking the highest reading in six years and far above the RBI’s comfort band of 2–6%. With retail prices already eroding household purchasing power, monetary easing at this stage could worsen inflationary pressures.
Experts Predict Status Quo on Rates
The RBI’s Monetary Policy Committee (MPC) has held the repo rate steady at 4% since May, pausing in both August and October reviews due to similar inflationary concerns. Analysts widely expect the central bank to extend this pause.
- “Despite inflation breaching the 6% mark, the policy rate is likely to remain on hold for now,” said Sunil Kumar Sinha, Principal Economist at India Ratings & Research.
- M. Govinda Rao, Chief Economic Advisor at Brickwork Ratings, noted that with real interest rates already negative, “the scope for further rate cuts is extremely limited.”
- Aditi Nayar of ICRA added that the twin realities of high inflation and faster growth recovery mean “there is no space for a cut, even though the accommodative stance will persist.”
Focus on Liquidity and Bond Market
Economists argue the RBI’s priority will shift towards liquidity management and stabilizing bond markets rather than reducing rates further. Madhavi Arora of Emkay Global pointed out that “markets will closely watch how the RBI handles liquidity amid persistent inflation and rupee appreciation pressures.”
The central bank has been lauded for maintaining stable government bond yields, with the 10-year G-Sec trading in a tight 5.8–5.9% range over the past two months despite fiscal and currency challenges.
Balancing Act Ahead
Analysts agree the RBI faces a delicate balancing act: supporting growth in the face of a fragile recovery while preventing inflation from spiraling further. “Managing monetary policy under these conditions will require the RBI to deploy all its available tools,” said Suman Chowdhury of Acuite Ratings.
The MPC’s next policy decision is scheduled to be announced on December 4.
