Season of Rate Cuts May Extend Due to RBI’s Focus on Growth
RBI Likely to Extend Rate Cuts to Support Growth Amidst Targeted Inflation
The Reserve Bank of India (RBI) is considering extending rate cuts as inflation remains within the targeted 4% range and economic growth shows signs of slowing down. The RBI’s FY25 report forecasts a 6.5% GDP growth rate and 4% inflation, indicating a shift towards a more accommodative policy stance to stimulate the economy. The strengthening rupee and easing global pressures provide leeway for deeper rate cuts, which could potentially commence as early as June.
RBI’s Stance Reflects Support for Economic Expansion
According to the RBI’s annual report for FY25, the central bank’s monetary policy stance will continue to bolster economic growth as inflation remains well within the target threshold of 4%. The report emphasizes the need for a supportive monetary policy stance to promote economic growth in the current environment of benign inflation and steady, albeit moderate, growth. The RBI envisions a promising future for the Indian economy, projecting it to maintain its status as the world’s fastest-growing major economy in FY26.
Positive Economic Outlook Backs Potential Rate Cuts
The RBI’s report forecasts India’s real GDP growth at 6.5% and CPI inflation at 4%, comfortably within the tolerance band. With inflation under control and growth decelerating, the likelihood of the RBI implementing further rate cuts is high. Economists and bankers support this stance, citing the opportune moment to prioritize growth without compromising on inflation.
Supportive Factors for India’s Economic Momentum
The report highlights various supportive elements driving India’s economic momentum, including a resurgence in private consumption, strengthened balance sheets of banks and corporates, accommodative financial conditions, and government initiatives aimed at boosting capital expenditure. These factors are anticipated to sustain India’s economic growth trajectory into the next fiscal year.
Improved Inflation Outlook and Monetar Policy Flexibility
The inflation outlook has significantly improved due to favorable factors such as easing global supply chain disruptions, declining international commodity prices, and expectations of robust agricultural output. With inflation dipping below target levels, the RBI is expected to prioritize growth, supported by positive interest rate differentials and an appreciating rupee.
