In the October 2024 meeting, the RBI Monetary Policy Committee (MPC) decided to hold the repo rate at 6.5%. However, the monetary policy stance was changed to ‘neutral’ to provide policy flexibility to the MPC. The MPC stressed that it remains unambiguously focused on a durable alignment of inflation with the target. The Governor emphasised the significant risks to inflation from adverse weather events, geopolitical conflicts and recent increases in certain commodity prices.

The RBI maintained the CPI projection for FY25 at 4.5% YoY. The MPC expressed greater confidence in the disinflation path later in the financial year. Food inflation is expected to ease by Q4FY25 due to better kharif arrivals and rising prospects for a good rabi season. Firms polled in the Reserve Bank enterprise surveys expect input cost pressures to ease. However, the recent upturn in key commodity and crude oil prices needs careful monitoring.

The RBI retained the FY25 GDP projection at 7.2% YoY despite the negative surprise in the Q1 print. The outlook for domestic growth remains resilient, with the agriculture sector anticipated to perform well due to above-normal rainfall and strong reservoir levels. Consumer and business confidence have also improved. Additionally, external demand is expected to benefit from increasing global trade volumes. However, intensifying geopolitical conflicts present a downside risk.

The shift to a ‘neutral’ policy stance gives the RBI the flexibility to cut rates when the data justify such action. A good monsoon season, healthy Kharif sowing, and robust reservoir levels have considerably improved the inflation outlook. Meanwhile, in recent months, some key indicators like GST collections, core production, and PMIs have moderated. Therefore, we expect the RBI to initiate the rate cut cycle in the December or February policy meeting, assuming inflation evolves as anticipated.

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