The Reserve Bank of India (RBI) is likely to maintain the status quo on the repo rate for the tenth consecutive time this week, but economists expect a change in stance to neutral that could be a precursor to an interest rate reduction in December 2024.

A neutral stance means the central bank can increase or reduce interest rates. At present, the stance is one of withdrawal of accommodation mode, which implies a rate cut is off the table.

The monetary policy committee (MPC) of the RBI will meet from Monday to Wednesday this week with three new external members.

Their deliberations come after the US Federal Reserve slashed borrowing costs by a hefty 50 basis points and the Chinese central bank announced a slew of measures to bolster its economy.

Back home, headline inflation fell below the mandated 4 per cent target for two consecutive months.

However, escalating tensions between Israel and Iran — which could affect oil supplies and lead to a spike in its prices — have added a layer of uncertainty to the RBI’s task.

Experts said with domestic growth remaining resilient and food inflation showing some signs of easing, the panel will wait for more data to take a call on interest rates.

“RBI is set to remain on hold, for the tenth consecutive MPC, keeping repo rate at 6.50 per cent. The guidance from RBI for near-term growth and inflation dynamics remains upbeat, and that rules out any material risk of a change in monetary policy guidance in the upcoming October MPC meeting,” Rahul Bajoria, India and Asean Economist at Bank of America said in a note.

“Governor Shaktikanta Das in his recent speeches has been categorically pushing back on any near-term turn, disassociating RBI’s monetary policy from the US rate cuts, and talking up future growth prospects.’’

While some global central banks have reduced interest rates, RBI governor Shaktikanta Das has on numerous occasions said any easing in India will be based on domestic factors and that retail inflation must align with the mandated target of 4 per cent on a durable basis.

Some analysts expect MPC to change its stance to neutral.

A report from HSBC said three developments stand out — softer growth numbers, falling inflation and the external environment has shifted to rate cuts from hikes.

“We believe the Reserve Bank doesn’t gain from waiting any longer. We think it will change its stance from a hawkish ‘withdrawal of accommodation’ to ‘neutral’ in the upcoming policy meeting, followed by repo rate cuts of 25 basis points each in the December and February meetings, taking the repo rate to 6 per cent,” the report said.

The meeting will see the participation of three new external members — Ram Singh, Saugata Bhattacharya and Nagesh Kumar. They have replaced Ashima Goyal, Shashanka Bhide, and Jayanth R Varma.

BankAm’s Bajoria said the new members do not seem to have a strong bias and may agree with RBI’s house view for some time.

“Slowing growth and falling inflation offer room for the RBI to cut rates in coming months. We expect repo rate cuts of 100bps by December 2025, beginning December 2024,’’ he said.