Inflationary concerns, RBI likely to postpone interest rate cuts

The Reserve Bank of India is expected to defer cutting interest rates until the final quarter of the year, as indicated by a recent Bloomberg survey. The RBI may reduce its benchmark repurchase rate by 50 basis points in the October-December period before pausing, due to rising inflation risks and the US Federal Reserve keeping rates steady. The RBI has kept interest rates on hold for seven straight meetings, with Governor Shaktikanta Das signaling his unwillingness to ease rates unless inflation settles around the central bank’s target of 4%. Inflation eased to below 5% in March, though an unusually hot summer could push up food costs
Radhika Rao, an economist at DBS Group Holdings Ltd., said India’s rate cuts could be pushed back to the next financial year that starts in April 2025.Considering near-term inflation risks, strong growth and a delay in US rate cut expectations, we expect the RBI to stay on an extended pause in fiscal year 2024-25,” she wrote in a note this week.Economists in the Bloomberg survey raised their projections for economic growth for the January-March quarter slightly to 6.3% from 6.1%. They see the economy expanding 6.7% in the full fiscal year that ends in March, up from last month’s estimate of 6.6%, according to the survey.
Economists predict that India's growth and inflation dynamics are healthy, but global and geopolitical developments, particularly decisions by the US Fed, could influence the RBI's rate decisions.The RBI's decision to delay rate cuts until the final quarter reflects a pragmatic strategy aimed at maintaining economic stability while responding to evolving challenges. Stakeholders will closely monitor future RBI policy decisions and their implications for India's economic trajectory amidst a dynamic global landscape.

(Ira Singh, Asstt Editor, Gandhinagar)