RBI May Delay Rate Cut Until Early 2025 Amid Inflation Stabilization

A recent report by SBI Research indicates that the Reserve Bank of India (RBI) is unlikely to announce a rate cut this year, with a potential decision expected by February 2025. India's CPI inflation has dropped to a near five-year low, but liquidity challenges for the banking sector may persist.

The Reserve Bank of India (RBI) is unlikely to announce any rate cuts this year, according to a recent SBI Research report. The study suggests that a rate cut could be expected by February 2025. The delay comes despite a 50 basis points rate cut by the US Federal Reserve and a recent decline in India's consumer price index (CPI) inflation to a near five-year low of 3.65% year-on-year in August 2024.

The report stated, "As such, we don't anticipate any rate action by RBI in the calendar year 2024. An early 2025 rate cut (February) looks the best bet as of now. We still believe that liquidity challenges will remain for the banking sector with government cash balances progressively moving out of the banking system." Despite projected spikes in inflation during September and October, the CPI inflation is expected to stay below or close to 5% in the ensuing months, remaining within the RBI's target range of 4-6% for the financial year 2024-25.

The report highlighted the favorable monsoon activity, recording a 7% surplus so far, which has enhanced Kharif sowing to 109.7 million hectares, surpassing the five-year average. As of September 17, Kharif crop sowing was 0.1% higher than the typical acreage and 2.2% higher than last year. Paddy sowing, in particular, saw a 2.1% increase, reaching 41 million hectares compared to the five-year average. The RBI has maintained tight liquidity to manage inflationary pressures, with government surplus cash balances averaging Rs 2.8 lakh crore and core liquidity surplus at Rs 3.19 lakh crore as of September 18.

The SBI Research report concluded that if inflation continues to remain within the RBI's target band, a rate cut announcement could be made by February 2025. (ANI)

(With inputs from agencies.)