# Reserve Bank of India to Maintain a Cautious Stance

- Link: https://www.thailand-business-news.com/banking/180136-reserve-bank-of-india-to-maintain-a-cautious-stance
- Published: 2024-12-14T08:14:00+07:00
- Author: News Desk

**The Reserve Bank of India held rates steady in December, with a cautious outlook
suggesting a potential 25bps cut in Q4 FY2024/25 amid projected growth recovery 
and inflation concerns.**
**Key View**

 * The Reserve Bank of India stood pat in its December meeting, as we expected.
 * While the accompanying statement sounded hawkish, we think another quarter of
   soft growth in Q3 FY2024/25 (April-March) will prompt the Bank to cut by 25bps
   in Q4 FY2024/25.
 * We still expect the Bank to take a cautious approach to easing in FY2025/26 and
   forecast 50bps in cuts over that year.

The policy board of the Reserve Bank of India (RBI) voted 4-2 to leave monetary 
policy settings unchanged in its December meeting, as we and 62 out of 67 economists
polled by Reuters had expected. The policy board also maintained a neutral stance
on monetary policy.

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Governor Shaktikanta Das’s remarks were hawkish in our view. While he acknowledged
the sharp drop in GDP growth in Q2 FY2024/25 (April-March) he downplayed the slowdown,
describing it as an ‘aberration’. And the Bank expects growth to recover to 6.8%
in Q3 FY2024/25 and further to 7.2% by the final quarter. Instead, Governor Das 
stressed the importance of bringing inflation back down to target, opining that 
it is vital to ensure steady economic growth. It is also worth noting that while
the RBI’s mean expectation is for headline inflation to fall to 4.5% y-o-y, its 
large forecast range suggests inflation could even rise to around 7% instead. 

**Outlook For Next Meeting**

We have some sympathy for the Bank’s hawkish tone. If anything, the Bank’s mean 
inflation forecast may be too optimistic – we think inflation will probably stay
close to the Bank’s 6% target upper-bound through the rest of FY2024/25 (see chart
below). 

The Reserve Bank of India (RBI) has consistently adopted a cautious approach to 
monetary policy, prioritizing economic stability amid fluctuating global dynamics.
As inflationary pressures and uncertainty continue to loom, the central bank is 
likely to maintain this prudence. This strategy not only addresses immediate economic
challenges but also lays the groundwork for sustainable growth in the long term.

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In recent months, various indicators have signaled a need for careful monitoring.
While some sectors exhibit resilience, others face headwinds, including rising commodity
prices and geopolitical tensions. The RBI is tasked with balancing the need for 
growth with the imperative to control inflation. Its commitment to vigilance is 
crucial as it navigates through these complexities, ensuring that policy measures
are both timely and effective.

Ultimately, the RBI’s cautious stance is a reflection of its dedication to safeguarding
the Indian economy. By prioritizing stability and methodical decision-making, the
central bank seeks to inspire confidence among investors and the public, fostering
an environment conducive to growth while mitigating risks.
[Read More](https://www.fitchsolutions.com/bmi/country-risk/reserve-bank-india-will-remain-cautious-06-12-2024)