RBI MPC may delay rate cut to April 2025 amid US Fed’s hawkish stance: Will this impact growth?

The Reserve Bank of India (RBI) may delay the beginning of its rate cut cycle to April 2025 due to the US Federal Reserve's move towards a more hawkish monetary policy approach.

“Given INR weakness and developing volatility in financial markets, we see the start of the rate cut cycle to shift to April 2025,” ANI reported, citing Yes Bank.

The US Fed has recently cut the key policy rate by 25 basis points (bps). However, compared to the earlier expectation of 100 bps, the forward guidance has reduced the projected rate cuts to just 50 bps in 2025.

The Fed Chair Jerome Powell mentioned that the decision to cut rates in December was contested closely, saying that despite the monetary policy being restrictive, it is moving towards a neutral stance.

According to the Yes Bank report, the decision of the Fed will have an impact on global financial markets. It also noted that the Fed watch tool is expecting no rate cut in January 2025, highlighting a slower pace of monetary easing. Due to this, the US dollar strengthened and the US Treasury yields rose, challenging central banks of emerging markets. This includes the RBI as well, which may be considering easing monetary policies to promote growth.

RBI faces complex balancing challenge

Meanwhile, the RBI now faces a complex balancing challenge of promoting domestic growth and managing inflation issues, the report said. Additionally, the depreciation of the rupee and the volatility of financial markets have complicated the issue.

“The RBI will now have to juggle the domestic growth imperatives alongside keeping inflation risks at bay,” the report said.

A delay in rate cuts will have an impact on India's growth momentum as businesses and individuals face higher costs of borrowing.

The RBI's MPC has kept the repo rate unchanged at 6.5 per cent since the last 10 consecutive meetings. Recently, Sanjay Malhotra has been appointed as the new governor. He will present the next monetary policy of the central bank in February 2025.