RBI Governor Shaktikanta Das (Photograph: PTI)

RBI Policy: There’s Room For Another Rate Cut, Say Economists

At least one more repo rate cut is expected this year after the Reserve Bank of India’s monetary policy committee lowered the benchmark interest rate by 25 basis points, according to economists.

RBI revised CPI inflation by 80 basis points with the upper limit of 3.2-3.4 percent in first half of next fiscal. This, economists said, signals further rate cuts.

The MPC also revised the policy stance to “neutral” from “calibrated tightening”. “The change in stance provides flexibility to address the challenges to sustain growth of the Indian economy over the coming months,” RBI Governor Shaktikanta Das said in a press briefing after the policy statement.

The MPC will “keep in mind” growth while making decisions, Das said, emphasising the return of growth to the central bank’s vocabulary and a shift from the committee’s primary focus on inflation targetting.

Here’s what economists had to say on repo rate cut:

Abheek Barua, HDFC Bank

Barua said there was room for further rate cuts. He also raised concerns on RBI “underplaying” the fiscal concerns and inflationary consequences.

RBI following its own rule—both recent history and forward guidance made a compelling case for the rate cut. Going by the guidance, room for further rate cut is there.
Abheek Barua, chief economist, HDFC Bank


Nomura, in a press release, said it is not “a one and done cut” based on the statement of Governor Shaktikanta Das and there was more room to act for the central bank.

We are reviewing our call on the policy rate trajectory. On growth, the RBI continues to sound optimistic, in contrast to our assessment that weak global growth, the lagged impact of tighter financial conditions and domestic political uncertainty will trigger a cyclical slowdown.

Rajni Thakur, RBL Bank

Thakur said there were all indications that the policy committee will look for more opportunities to cut rates further in the cycle “if space is available”.

RBI seems to be focussed on it (financial sector stability) in deciding to cut the rates and complimenting it with other announcements regarding non-banking lenders’ credit assessment, raising limits for foreign portfolio investors, as the political cycle intensifies. 
Rajni Thakur, economist, RBL Bank

Shubhada Rao, Yes Bank

Shubhada Rao, chief economist at Yes Bank, said headline inflation will “definitely” give room to the central bank to cut rates. Also, the output gap opening up was due to decline in actual output and not potential increase due capacity expansion or investment recovery, she said.