The Reserve Bank of India (RBI) is expected to keep interest rates unchanged on 6th December, as a spike in consumer inflation has prompted several economists in a Reuters poll to delay their predictions for the first rate cut of the cycle to February.

Annual retail inflation exceeded the RBI's 6% tolerance limit in October, fuelled by rising food prices. RBI Governor Shaktikanta Das, who is likely to serve another term, recently cautioned that cutting rates prematurely would be a risky move.

This comes despite the RBI shifting its monetary policy stance to 'neutral' in October and growing pressure from top government ministers to lower interest rates to bolster a slowing economy.

In a Reuters poll conducted between 18th and 27th November, a strong majority of economists, 62 out of 67, anticipated that the RBI would maintain its key repo rate at 6.50% following its 4th to 6th December meeting, while five predicted a 25-basis-point (bp) cut.

This represents a shift from last month’s poll, where a narrow majority of economists had expected a rate cut to 6.25% in December.

“If Governor Das stays on ... policy loosening is not on the cards for the time being. Das has been one of the more hawkish panel members in recent months,” stated deputy chief emerging markets economist at Capital Economics, Shilan Shah.

“That all said, there is growing evidence that the economy is cooling and we still think that inflation will drop back over the coming months. That will open the door for policy easing.”

Out of 48 common contributors who provided rate forecasts in both polls, 21 have shifted their expectation for the first rate cut from December to February or later.

HSBC's chief India economist, Pranjul Bhandari, who revised her forecast to February, stated: “In the past, the RBI used to often look through vegetable price inflation, but that is not the case anymore.”

“Back-to-back (inflation) shocks seem to have made officials distrustful of quick disinflation in vegetable prices. It may prefer to wait now, and ease... (at the) February and April meetings.”

The average forecasts in the poll indicate that the RBI will reduce interest rates by half a point to 6.00% by the end of June 2025, a projection that remains unchanged from last month. 

This is expected to be followed by an extended pause in rate cuts until at least early 2026.