India’s economic horizon is currently navigated by the sails of inflation, as Governor Shaktikanta Das asserts that the Reserve Bank of India (RBI) won’t be contemplating any interest rate cuts until inflation comfortably anchors around the 4% mark. Despite moderation in price gains, Das emphasizes the need for concrete evidence of sustained inflation before entertaining discussions on rate cuts.
Rates Unmoved Amidst Hawkish Winds
In a steadfast stance, the RBI has maintained unchanged interest rates for five consecutive policy meetings, holding a relatively hawkish position as inflation lingers above the targeted range. Das quashes speculations, affirming that the topic of rate cuts is yet to grace the table of discussion among policymakers.
A Word on Fed Rate Cuts
Governor Das warns against the markets outrunning central banks, emphasizing that India’s rate cuts will hinge on domestic factors rather than following the Federal Reserve’s footsteps. He reiterates the RBI’s commitment to an “actively disinflationary” policy.
Inflation’s Volatility in December
December witnessed a spike in India’s inflation to a four-month high, primarily attributed to fluctuating food prices. While the core measure, excluding food and fuel costs, dipped below 4% for the first time in nearly four years, expectations of rate cuts linger.
RBI’s Bullish Outlook
Das paints a picture of optimism, projecting economic growth to touch 7% in the next fiscal year, with inflation averaging around 4.5%. This outlook, if realised, would mark four consecutive years of growth of around 7% or more.
Pushback Against IMF Criticism
The governor rebuffs the International Monetary Fund’s (IMF) critique of the RBI’s currency intervention, defending it as a measure to prevent excessive volatility rather than an excessive intervention. Das stresses the importance of a stable currency for investment, business, and the overall well-being of the people.
Bonds and Capital Flows
Inclusion in JP Morgan Chase & Co.’s index is anticipated to bring capital flows into India’s bond markets. Das, however, assures that this won’t sway the RBI’s intervention strategy, emphasizing the economy’s capacity to absorb gradual inflows without causing abrupt disruptions.
As the RBI continues to steer India’s economic ship, the journey ahead promises both challenges and opportunities, with inflation serving as the compass guiding policy decisions.
Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.
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