RBI MPC October Meeting: Citi Sees 'Dovish Tilt', Repo Rate Cut Possible

The Reserve Bank of India's Monetary Policy Committee may adopt a dovish tilt at its meeting next week and deliver an interest rate cut to support the economy, according to Citi's Chief India Economist Samiran Chakraborty. The MPC will meet from Sept. 29 to Oct. 1.

Analysts took into account the US tariff shock on Indian exports, better-than-expected growth, fiscal stimulus, lower inflation resulting from GST rate cuts, and incomplete bond market channel transmission when assessing the appropriate monetary policy response, especially after the central bank paused its rate-easing cycle in August.

"We conclude that space for a more dovish tilt in the October MPC has opened up...," Chakraborty said in a note on Thursday.

Citi expects two prominent outcomes from the MPC meeting: an "insurance" repo rate cut to protect against the downside growth risks or a "dovish pause" with an outright assurance to act soon if required.

The brokerage has a marginal bias that the RBI will go for the "insurance" rate cut because communicating a "dovish pause" might be more difficult, resulting in a "wait and watch" policy, the note said.

The RBI has been managing inflationary pressures alongside growth objectives.

India's retail inflation saw a reversal in trend in August, after easing to the lowest in eight years in July, led by a slight uptick in food prices and core items. The consumer price index-based inflation was at 2.07% in August and remained within the RBI's comfort zone, potentially giving the central bank more leeway for monetary policy adjustment.

Market sentiment around the RBI's upcoming MPC meeting is generally divided between a potential rate cut and a prolonged pause. While some analysts expect a dovish tilt due to global growth concerns and moderating domestic inflation, others point to the need for continued vigilance against price pressures and the stability provided by a pause.