RBI Policy: What are the Markets Expecting?

The Financial Year 2025 has started and RBI’s first Monetary Policy Committee (MPC) chaired by RBI governor Shaktikanta Das started on April 3, Wednesday to April 5, Today. Markets have expectations and markets are predicting what could be the outcome of the committee meeting. The Monetary Policy Committee is a 6 member committee led by the RBI governor, other members of the MPC are Shashanka Bhide, Ashima Goyal, Jayanth R Varma, Rajiv Ranjan, and Michael Debabrata Patra.

Current Scenario

Indian economy saw its GDP grow at a staggering 8.4% in the last quarter of the 2024 fiscal year. The National Statistical Office (NSO) has adjusted the GDP estimates for the initial and second quarters of this fiscal to 8.2% and 8.1%, up from 7.8% and 7.6%.

The CPI (Consumer Price Index) inflation numbers for February stood at 5.1%. This is within the RBI’s target of the band between 2-6% inflation that has been set for it by the government. The good GDP growth data indicates the Indian economy is on a strong base, and RBI has little reason to begin the rate cut cycle as global economic uncertainties are adding to the volatility in inflation data, 

Looking at the global trends of the other central banks of major economies, like the US and the UK, which are currently holding on to the decision and observing before making any decisions on rate cuts. Switzerland became the first major economy to have rate cuts and Japan, the world’s third-largest economy, ended its eight-year period of negative interest rates.

Expectations

The markets are expecting the Reserve Bank of India is likely to keep the repo rate steady at 6.5%, without changing its approach. Even surveys led by SBI, Reuters think the RBI will keep the rates stable. The sticky inflation problem persists on a global scale and for RBI to jump the gun and announce rate cuts earlier and others would be a risk for India’s inflation numbers spiking up drastically.

Conclusion: A rate cut at this time would make the markets happy but jumping to rate cuts would be premature, this thought process is expected to be followed by the RBI, geopolitical uncertainties still weigh heavily on global growth through fragile supply chains and with such ambiguity it would not be in RBI’s interest, markets expect the rate cuts to commence in the third quarter of this year.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.