New Delhi [India], September 20 : In light of the recent 50 basis points (bps) rate cut by the US Federal Reserve, the Reserve Bank of India (RBI) may consider a similar move but not this year, potentially announcing a rate cut by February 2025, according to a report by SBI Research.
The report highlighted that India's consumer price index (CPI) inflation has eased to a near five-year low of 3.65 per cent year-on-year in August 2024.
"As such, we don't anticipate any rate action by RBI in calendar 2024. An early 2025 rate cut (February) looks the best bet as of now. We still believe that liquidity challenges will remain for the banking sector with government cash balances progressively moving out of the banking system," said the report.
Despite expected spikes in inflation in September and October, as per the report, the CPI inflation is projected to remain below or close to 5 per cent in the coming months. For the full financial year 2024-25, average inflation is expected to be in the range of 4.6 per cent to 4.7 per cent, staying within the RBI's target range of 4-6 per cent.
"However, for the full year FY25, CPI inflation is likely to average to 4.6 per cent- 4.7 per cent and will remain in the RBI's targeted range of 4 -6 per cent" added the report.
The report also noted that monsoon activity has been favorable, with a 7 per cent surplus recorded so far. This has positively impacted Kharif sowing, which has reached 109.7 million hectares, surpassing the five-year average.
As of September 17, Kharif crop sowing was 0.1 per cent higher than the typical acreage and 2.2 per cent higher than last year. Paddy sowing, in particular, saw a 2.1% increase, reaching 41 million hectares compared to the five-year average.
In terms of monetary policy, according to the report, the RBI has continued to maintain tight liquidity to manage inflationary pressures. Government surplus cash balances averaged Rs 2.8 lakh crore, while the durable/core liquidity surplus increased to Rs 3.19 lakh crore as of September 18, with an average of Rs 3.9 lakh crore since the last monetary policy announcement.
Considering the reasons, the report added that if the inflation continued to be in the RBI's band, the rate cut announcement could be made soon by February next year.