India's Reserve Bank of India (RBI) is expected to maintain the policy repo rate during the upcoming Monetary Policy Committee (MPC) meeting from December 4 to 6, despite a disappointing GDP growth of 5.4% for the July-September quarter. This figure significantly undercuts the RBI's earlier projection of 7% and the market expectation of 6.6%.
Consumer Price Index (CPI) inflation surged to 6.2% year-on-year in October, breaching the RBI's tolerance limit, which complicates the decision for rate cuts. Economists predict that the MPC will hold rates steady, with some dissent expected among members.
Following the GDP announcement, the yield on the benchmark 10-year government bond fell by 6 basis points to 6.74%. Market reactions indicate initial optimism regarding potential rate cuts, although expectations have shifted towards a possible reduction in February 2025 if inflation eases.
The MPC has maintained its current stance since February 2023 after increasing rates by 250 basis points. The recent economic data has altered market expectations, with analysts now speculating that any rate cuts might be delayed until February rather than December.