Key Predictions and Economic Context

Possible CRR Cut and OMO Measures

HSBC economists foresee a 50 basis points (bps) CRR cut, which could inject liquidity into the banking system. This, combined with OMOs, may act as a strategic response to tighten domestic liquidity conditions.

Rate Cut Speculations

Nomura India anticipates an unconventional 25 bps rate cut, reducing the repo rate to 6.25%. This comes amidst slowing GDP growth, which fell from 6.7% in Q1 to 5.4% in Q2, signaling weak private demand. Nomura also predicts further cumulative rate cuts of 100 bps by mid-2025, aiming for a terminal rate of 5.50%.

Inflation and Growth Trade-offs

The RBI's hawkish stance has focused on controlling high CPI inflation, which hit 6.2% year-on-year in October. However, Nomura emphasizes the need for a balanced approach, advocating for policy decisions prioritizing growth in light of the cyclical slowdown.

Stock Market Implications

Stock investors are keenly awaiting the outcome of the RBI Monetary Policy Committee (MPC) meeting. Benchmark indices showed optimism, climbing 1% on Thursday. A rate cut or liquidity-enhancing measures could bolster market sentiment and provide much-needed support to the economy.

Diverging Views Among Economists

• Nuvama Institutional Equities: Believes a rate cut is unlikely, citing pressure on the rupee and recommending liquidity-boosting measures like OMOs.
• HSBC: Suggests the RBI could revert the CRR to pre-COVID levels, releasing ₹1.2 lakh crore to address potential liquidity deficits.

Conclusion

The upcoming RBI policy announcement will play a pivotal role in shaping India's economic trajectory. While some experts highlight the urgency of growth-focused measures, others caution against premature rate cuts given external pressures. All eyes are on December 6, as the central bank balances inflation control with stimulating economic growth.