Experts see space for future rate cuts by RBI, but inflation will be key monitorable

Liquidity measures will be important to watch as governments borrow heavily

INDIA-ECONOMY/RATES [File] Reserve Bank of India (RBI) Governor Shaktikanta Das adjusts the microphone before a news conference after a monetary policy review in Mumbai | Reuters

The Reserve Bank of India’s monetary policy committee left the benchmark repo rate unchanged on Thursday at 4 per cent. However, it decided to continue with its “accommodative” stance for as long as it would be necessary to revive growth. RBI Governor Shaktikanta Das also noted that the space for further monetary policy action was available, but it was important to use it judiciously and that the MPC was conscious of the inflation target.

Here is how experts viewed the MPC announcement and how they see the road ahead.

Shanti Ekambaram, group president – Consumer Banking, Kotak Mahindra Bank:

The policy was on expected lines and in keeping with the current market and business environment. This pause gives the MPC the option of effecting a future rate cut when inflation falls and based on how the economy progresses.  

Suvodeep Rakshit, vice-president and senior economist, Kotak Institutional Equities:

The efficacy of rate cuts is anyway low in the current juncture and the past rate cuts are still feeding into the system. We expect the RBI to pause in the near-term with the possibility of rate cut (if any) visible from the December policy when inflation starts to fall. Going forward, liquidity measures will be important to watch for as the central and state governments borrow heavily under the revised borrowing plans.

R.K. Gurumurthy, treasury head, Lakshmi Vilas Bank:

RBI’s caution on rates is driven by the fact that retail inflation is rearing its ugly head with food inflation remaining sticky and higher. The RBI, therefore, expects elevated inflation readings for a few more months. The positive thing is that the RBI would continue to be watchful and has not yet cried halt to the easing cycle.

Joseph Thomas, head of research–Emkay Wealth Management:

The RBI has clearly stated that there is further room for a rate cut, but the RBI will wait and watch for a durable reduction in inflation for further rate action. This amounts to saying that only if there is sustained fall in inflation, especially food prices, RBI may consider further rate cuts.

Vivek Kumar, senior economist, Yes Bank:

Gradual opening up of the economy, normal monsoon out-turn and disinflationary impact of a wide negative output gap, would soon start dominating the downside risk to inflation. This should continue to leave the door open for incremental monetary accommodation in the near term.

Anagha Deodhar, economist, ICICI Securities:

Although the committee delivered large rate cuts since the onset of COVID-19, credit growth has been falling consistently. This shows that the ability of monetary policy in stimulating growth is constrained in the current situation. The MPCs unanimous decision to pause is an acknowledgment of the same. Measures such as loan restructuring, increasing loan to value for gold loans, additional liquidity facilities for National Housing Bank and NABARD are expected to have a favourable impact.

Arun Singh, global chief economist, Dun and Bradstreet:

Any further revival in demand would only add to existing supply side inflationary pressures. The prevailing high inflation in food articles would also eventually feed into the inflation expectations of households. This has left less room for further monetary policy easing. It is thus likely that India might have to manage a subdued growth along with a high inflationary situation in the near to medium term.