RBI May Cut Interest Rates Further
The Reserve Bank of India (RBI) has hinted at the possibility of future rate cuts, according to a recent report by Crisil Intelligence. This indication comes as the central bank’s monetary policy committee (MPC) has sharply revised its inflation forecast downward. On October 1, RBI had kept its policy interest rate unchanged at 5.5% for the second consecutive time due to tariff uncertainties.
What’s the Story
The RBI’s decision to keep the policy interest rate unchanged was largely expected, given the current economic conditions. However, the report by Crisil Intelligence suggests that the central bank may consider cutting interest rates further in the future. This is because the MPC has revised its inflation forecast downward, which could pave the way for future rate cuts.
Impact of US Tariffs on GDP Growth
The report further noted that the MPC expects GDP growth to face downside risks in H2 of FY 2025-26, owing to US tariffs. However, it also said that the recent rationalization of GST rates will mitigate some of this impact. Certain labor-intensive sectors are most vulnerable to the impact of US tariffs and need policy support, according to Crisil Intelligence.
RBI’s Rate Cuts Since February
Since February, the RBI has cut the policy rate by 100 basis points. In its last policy review in June, it had reduced the repo rate by 50 basis points to 5.5%. The government has tasked the central bank with keeping Consumer Price Index (CPI)-based retail inflation at 4% with a margin of 2% on either side.
Retail Inflation Hits 6-Year Low
On the MPC’s recommendation, the RBI cut the repo rate by 25bps each in February and April, and by 50 basis points in June. These cuts were made amid a decline in retail inflation. Retail inflation has been below 4% since February this year, hitting a six-year low of 2.07% in August due to falling food prices and a favorable base effect.
Conclusion
In conclusion, the RBI’s hint at future rate cuts is a positive sign for the economy. The central bank’s decision to cut interest rates further will depend on various factors, including inflation and GDP growth. With retail inflation at a six-year low and the government’s efforts to rationalize GST rates, the RBI may consider cutting interest rates further to boost economic growth. However, the impact of US tariffs on GDP growth remains a concern, and the RBI will need to carefully consider this factor when making its decision.
