The Reserve Bank of India (RBI) is widely expected to cut the policy repo rate by up to 50 basis points again in the current cycle even as retail inflation breached the medium-term target of 4 per cent in October.
The six-member monetary policy committee (MPC) will have a difficult task at its hands next month as it will be faced with the choice of restraining inflation or maintaining its focus on growth.
This is the view of economists after the headline CPI inflation for October came in higher at 4.6 per cent.
“Given the persistent slowdown in growth and expectations of a disappointing third-quarter GDP print in the run-up to the December policy meeting, we believe the MPC will have to face a difficult choice between heeding the breach in inflation, and keeping its focus trained on growth,” economists at Nomura said in a note.
They added that the interest rate setting body will “see through” this spike in inflation, given the gravity of the growth slowdown and decide on another 25-basis-point cut in the repo. According to Nomura, despite the volatility in vegetable inflation, food inflation is likely to remain elevated till the first quarter of 2020.
Others are of the view that the RBI will bring down the repo rate by up to 50 basis points in the current cycle.
Analysts at foreign brokerage Bank of America Merrill Lynch said the central bank will cut rates by 25 basis points in December and follow it up with a 15-basis-point reduction in February.
