New Delhi: The Reserve Bank of India (RBI) is anticipated to maintain its policy rates during the forthcoming Monetary Policy Committee (MPC) meeting set for December 4 to December 6, as indicated by a report from the State Bank of India (SBI).
The report pointed out that headline inflation remains at elevated levels, making an immediate reduction in rates improbable.
It recommended that the RBI adopt a neutral monetary stance, focusing on growth while avoiding significant changes to its policy framework.
"We believe the stance should remain neutral, fostering growth (the withdrawal of accommodation was addressed in the last policy)," the report stated.
The previous meeting's decision to remove the "withdrawal of accommodation" stance has already laid the groundwork for supporting growth.
Additionally, the report forecasts that the first rate cut may occur in February 2025, consistent with earlier predictions made in its October pre-policy document.
The report noted that while the Indian economy is experiencing a gradual slowdown and facing geopolitical uncertainties, a hasty response such as an immediate rate cut may not be advisable.
Although there are expectations for inflation to moderate starting in November, the current headline inflation levels are still deemed sufficiently high to necessitate cautious policymaking.
The report cautioned against a hasty monetary response, such as a rate cut, in light of the Q2 growth figures, given that headline inflation remains at troubling levels, although it is expected to ease starting in November.
Additionally, the report highlighted the importance of reassessing liquidity management strategies. It noted that while lowering the Cash Reserve Ratio (CRR) could be a viable option, the Reserve Bank of India (RBI) has previously shown reluctance to utilize CRR as a comprehensive liquidity management tool.
Instead, the report advocated for a more refined strategy, suggesting that the RBI might consider adjusting CRR requirements for specific liabilities on a micro level and adopting a counter-cyclical approach. This method could provide a more effective means of managing liquidity while simultaneously addressing inflation and growth challenges.
The report stated, "Although a CRR reduction could be a practical option, the Central Bank has previously indicated that relying on headline CRR as a liquidity management strategy may not be the most suitable approach."
The forthcoming Monetary Policy Committee (MPC) meeting will be closely monitored for the RBI's position and actions as it seeks to balance the intricate issues of inflation management and economic growth.
