The Reserve Bank of India (RBI) is expected to retain the key interest rate at 6.5 per cent this week and assess additional macroeconomic data before considering a rate cut, according to experts. In contrast, the US Federal Reserve has opted to keep its interest rate unchanged at present while hinting at potential monetary policy adjustments in the near future. Given the ongoing inflationary pressures, the RBI will monitor the trajectory of US monetary policy closely before altering its stance on interest rates, which has remained constant since February 2023. Despite the current interest rate of 6.5 per cent, the Monetary Policy Committee (MPC) might abstain from reducing rates as the economy shows signs of improvement.
The upcoming meeting of the MPC, led by Reserve Bank Governor Shaktikanta Das, is scheduled from August 6 to 8, with the rate-setting panel’s decision set to be disclosed on August 8 (Thursday). Madan Sabnavis, the chief economist at Bank of Baroda, anticipates that the RBI will maintain a status quo position in the upcoming credit policy due to persistent inflation, currently standing at 5.1 per cent. Sabnavis emphasized the need for substantial evidence of a sustained decline in inflation before any policy adjustments are made.
Aditi Nayar, chief economist at ICRA, suggested that a shift in stance could occur in October 2024 if favorable food inflation outlooks align with normal monsoon conditions in the latter half of the season. This potential change may be followed by gradual 25 basis points rate cuts in December 2024 and February 2025. Pradeep Aggarwal, founder and chairman of Signature Global (India), expects the RBI to maintain the status quo on interest rates due to ongoing challenges posed by retail inflation. Aggarwal emphasized that any future change in stance would provide relief to borrowers and boost housing loan demand, potentially benefiting the overall economy, especially when combined with achieving the 4.9 per cent fiscal deficit target.
Leave a comment