MPC Poll: Economists split on December policy between pause and 25 bps cut

Reserve Bank of India (RBI) Monetary Policy Committee (MPC) Meeting: Economists Divided on Rate Cuts

Economists are sharply divided on the upcoming RBI monetary policy committee (MPC) meeting on December 5, with 8 out of 15 polled expecting no rate cut and 7 anticipating a 25 basis points (bps) reduction.

Why the Pause Camp Leans on Strong GDP and Policy Space

• Strong GDP data: Economists leaning toward a pause cite strong GDP data as a reason to maintain the current policy stance.
• External pressures: External pressures, such as currency pressure and trade negotiations, are also cited as a reason for the pause.
• Need to preserve policy space: Economists argue that the RBI should preserve policy space for future use, rather than cutting rates now.

Case for a Cut

• Subdued inflation: Economists arguing for a cut point to subdued inflation levels as a reason for rate cuts.
• Slowing nominal growth: Slowing nominal growth is also cited as a reason for a rate cut.
• Undervalued currency: An undervalued currency is seen as creating space for a rate cut.

Economist Quotes

Madan Sabnavis, Bank of Baroda: "There is no reason for a rate cut. We need to preserve a 1.5% real rate futuristically."

Gaura Sengupta, IDFC First Bank: "It's better to utilise policy space when downside risks to growth materialise."

Rajni Thakur, L&T Finance: "I expect MPC to stay on pause in December, largely because the expected overshoot in growth and undershoot in inflation don’t justify a rate cut."

Anitha Rangan, RBL Bank: "Externalities and currency pressure are high. Having spent over $20 billion in the spot market in Oct-Nov, a rate cut would be a waste of reserves."

Key Takeaways

• The RBI's communication on OMOs and stance will be closely watched by markets.
• Liquidity management is emerging as a common theme across both camps.
• The RBI is close to the end of its easing cycle, with no change in stance warranted.