It is anticipated that the Reserve Bank of India (RBI) would keep the repo rate, which is the rate at which it lends to banks, steady at 6.5% for the tenth consecutive year when the Monetary Policy Committee releases its decision on 9 October.

The current “withdrawal of accommodation,” which entails gradually tightening policy to contain inflation, may give way to a “neutral” position, which allows flexibility to respond based on changing economic conditions.

The central bank is becoming increasingly concerned about inflation as the effects of earlier base reductions wear off and food prices begin to rise again.

Inflation in the upcoming months is likely to be approximately 5%, particularly if the prolonged monsoon raises the cost of vegetables.

Inflation in India may get worse even if oil prices are still reasonable because of China’s stimulus program, which might raise the price of commodities globally, especially metals and oil.

On 8 October, the chief economist for China unveiled a second batch of stimulus packages.

Food inflation must stabilise close to the 4% target before real interest rate adjustments are made, as RBI Governor Shaktikanta Das has often stated.

In July and August of 2024, the Consumer Price Index (CPI) dropped below 4%, although the average retail inflation rate from April to August is still 4.3%, with food inflation being around 5%.

This implies that more easing might be subject to a longer-term slowdown in food prices.

The RBI will postpone rate reduction for the time being in order to concentrate on domestic growth and inflation rather than following the US Federal Reserve’s lead.

For the first time in the past two years, bank lending growth has also slowed and is now trailing deposit growth.

Geopolitical concerns may drive up oil costs, but India has enough safety nets; the RBI projects that oil prices will hover around $85 per barrel. This gives us ample leeway to prevent significant domestic price increases.

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