RBI monetary policy: Rupee slump complicates path to an RBI repo rate cut

Key Highlights

• Since then, however, official data showed that the Indian economy is proving resilient in the face of 50% US tariffs, while the rupee has plummeted. As a result, the expectations of an RBI repo rate cut “appear to have faded,” and the central bank seems to be entering a phase of prolonged pause, said Soumya Kanti Ghosh, chief economic adviser at the State Bank of India and a member of the Prime Minister’s Economic Advisory Council. The rupee’s slide since the last MPC meeting is making Friday’s decision more difficult to predict.
• The RBI has gone from vigorous defence of the currency to allowing it to breach 90 to the dollar this week amid uncertainty about a India-US trade deal.
• That makes this week’s policy decision a “nail biter”, Nomura Holdings economists wrote in a note. Some analysts like Kunal Sodhani, head of treasury at Shinhan Bank in Mumbai, argue that an interest rate cut would potentially add further pressure on the currency and may prompt the RBI to keep interest rates steady.
• Others like Pranjul Bhandari at HSBC Plc, say a gradually weakening rupee is “the best shock absorber for high tariffs.”Here are some of the key things to watch out for in Malhotra’s televised speech at 10 am local time on Friday:Growth, Inflation ForecastsThe RBI will likely revise both its inflation and growth forecasts for the current financial year through March, economists said. Inflation projections may be lowered to about 1.8%-2% to reflect softer-than-expected prints recently, according to Indranil Pan, an economist at Yes Bank Ltd.
• Inflation slid to 0.25% in October, the lowest since the current series began in 2012.