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Time of India
4 days ago
- Business
- Time of India
Economists split on interest rate cuts as inflation hits six-year low
Mumbai: Economists are divided on the trajectory of interest rate cuts . While some cite six-year low inflation as grounds for another rate cut in the upcoming August policy, the majority advocate for maintaining the status quo. Those calling for a pause argue that it is prudent to wait and assess inflation trends in the coming quarter and monitor developments around the US trade deal. Economists shared these perspectives with the Reserve Bank of India governor Sanjay Malhotra , deputy governor Poonam Gupta and her team during customary pre-policy consultative meetings held last week. Explore courses from Top Institutes in Please select course: Select a Course Category Public Policy Management MCA PGDM MBA Data Science Technology Project Management healthcare Healthcare Cybersecurity Degree Artificial Intelligence Data Analytics Finance Data Science Others Design Thinking CXO Product Management Operations Management Leadership Digital Marketing others Skills you'll gain: Economics for Public Policy Making Quantitative Techniques Public & Project Finance Law, Health & Urban Development Policy Duration: 12 Months IIM Kozhikode Professional Certificate Programme in Public Policy Management Starts on Mar 3, 2024 Get Details Skills you'll gain: Duration: 12 Months IIM Calcutta Executive Programme in Public Policy and Management Starts on undefined Get Details Since February, the RBI has lowered the repo rate by 100 basis points, or a percentage point, to 5.5%. It has also announced lowering cash reserve ratio by 100 bps in a phased manner beginning September 2025, which is estimated to release ₹2.5 lakh crore in the banking system. When the central bank's six-member Monetary Policy Committee (MPC) meet from August 4 to 6, it is expected to deliberate on the policy repo rate using two key data points: the June quarter GDP projections and the latest retail inflation figures. Consumer Price Index-based inflation slowed to 2.1% in June, well below the RBI's medium-term target of 4%. Meanwhile, estimates suggest that economic growth for the April-June 2025 quarter is tracking above the RBI's projection of 6.5%. Live Events "After having given a steroid dose in the last policy (a 50-bps repo reduction in June), why cut when growth is not faltering? The timing also is not very convincing; there is a lot of uncertainty trade policy-wise and a lot of things are impending," said an economist who attended one of the RBI meetings. Ratings firm ICRA expects GDP growth to be between 6.0% and 6.5% in the first quarter of fiscal 2026, according to a report published last week. IDFC First Bank does not expect any revision to the RBI's FY26 GDP estimate of 6.5%, saying "High frequency indicators continue to show moderation in urban consumption." Official GDP data for the quarter is expected in late August. "We maintain a view of a pause on rates. A 25-bps cut would likely cause real rates (based on 12M ahead inflation) to fall sharply for FY27-which the MPC would prefer to avoid," said Anubhuti Sahay of Standard Chartered in a report published on July 22. Speaking at an event on Friday, governor Malhotra reiterated that price stability remained the central bank's primary objective. He remarked that while the RBI has won the "battle" against inflation, the war continues. Given the forward-looking nature of monetary policy, decisions will be based on data reflecting a six-to 12-month outlook rather than current figures. "Monetary policy, being data driven and more on the outlook, will be guided by the revised numbers, if any, and take a call," Malhotra said. The RBI has projected retail inflation to be 3.7% for the current fiscal year, though the projection for the fourth quarter remains above 4% at 4.4%. "It may be, you know, revised downwards given the fact that the numbers that are coming in are lower than what we had projected even for Q1," Malhotra added. "If the food prices are lower, inflation would be around 4%. It's all statistical right now, and the base effect would be revised next year and because of low food inflation now, it could lead to lower inflation in Q1FY27," said another economist who has conveyed to the RBI that a rate cut in August would benefit the economy. DBS Bank expects another 50-bps rate cut this calendar year, with half that in August. "The ongoing disinflationary phase, coupled with moderation in growth indicators, provides room for the central bank to frontload rate cuts... Factoring in the current inflation series, we expect unfavourable base effects to prop FY27 inflation to average 4.3% yoy vs 3.0% in FY26," Radhika Rao of DBS Bank said in a report published on July 25 The RBI will release its inflation projections for Q1FY27 for the first time on August 6.
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Business Standard
25-06-2025
- Business
- Business Standard
RBI bulletin: India's economic activity 'resilient' amid global flux
Economic activity is holding firm in India amid a challenging global environment, and financial conditions remained conducive to facilitate an efficient transmission of interest rate cuts to the credit market, Reserve Bank of India officials said in a report on the 'State of the Economy' in its monthly bulletin. The rate setting panel of the central bank has cut the policy repo rate by 100 basis points (bps) to 5.5 per cent in quick succession between February and June. Moreover, the 100 bps cut in banks' cash reserve ratio requirements to be implemented in phases, starting from the fortnight beginning 6 September 2025, will release primary liquidity of ₹2.5 trillion. This will reduce the cost of funds for banks, thereby facilitating monetary policy transmission to the credit market, the report noted. 'Overall, financial conditions remained conducive to facilitate an efficient transmission of rate cuts to the credit market,' it underlined. Following the 50 bps rate cut through February and April, the weighted average lending rate on fresh and outstanding rupee loans of scheduled commercial banks declined by 6 bps and 17 bps, respectively, during the period February-April 2025. On the deposit side, the weighted average domestic term deposit rates on fresh and outstanding deposits moderated 27 bps and 1 bp, respectively. The report pointed to significant softening in average bank credit growth to various sectors of the economy between April 2024 and April 2025. While credit growth decelerated in April – notably in the agriculture and services sectors – non-bank sources of credit, including external commercial borrowing (ECB) inflows continued to be healthy, although it moderated from March. Scheduled commercial banks credit growth moderated to 9.9 per cent, as on May 30, 2025 from 16.2 per cent a year ago, and the report attributed this to weaker momentum as well as unfavourable base effects. 'The global economy is in a state of flux, reeling from the twin shocks of trade policy uncertainties and a spike in geo-political tensions,' the report authored by RBI staffers said, with guidance and comments of Poonam Gupta, deputy governor in charge of the monetary policy department. The views expressed in the report are those of the authors, not the central bank, it is clarified. The report said that the optimism from a temporary tariff freeze and trade deals has kept financial market sentiments buoyed in May and early-June 2025, but following the outbreak of the Iran-Israel conflict, heightened uncertainty and volatility have once again gripped financial markets. Highlighting the possibility of a marked deterioration in medium-term economic prospects amidst rising trade barriers, the report said protracted trade policy uncertainties pose the risk of significantly scarring the global economy. 'The intensifying geopolitical tensions too may further debilitate the already-weakened growth impulses. In this context, the trade policy outcomes in July, after the temporary tariff hiatus is over, and the future course of geo-political events would likely shape the medium-term economic prospects,' it averred. 'In this state of elevated global uncertainty, various high-frequency indicators for May 2025 point towards resilient economic activity in India across the industrial and services sectors,' the report said. 'On the domestic front, the provisional estimates released in May have reaffirmed growth to be 6.5 per cent in 2024-25, with a significant sequential pickup in Q4,' it said. Capacity utilisation by manufacturing firms remained above its long-period average, and high-frequency indicators of aggregate demand for May also suggested a pick-up in rural demand, especially given the strong performance of the agricultural sector, the report noted. Among the countries surveyed for the Purchasing Managers' Index (PMI), overall activity expansion was the highest in India with new export orders' uptick in May being an outlier amidst the contraction seen in other major economies. 'All of these indicate considerable resilience of the Indian economy, notwithstanding the global economic, trade, and geopolitical uncertainties,' the report said. Domestic inflation remains benign with headline inflation remaining below the target for the fourth consecutive month in May. 'Steady core [Consumer Price Index (CPI) excluding food and fuel inflation], with indications of some softening after excluding the impact of volatile and elevated gold and silver prices, indicates that underlying inflationary pressures remain muted,' it said. The report further added the external sector continued to be robust, with adequate forex reserve cover for imports and external debt. As on June 13, 2025, India's foreign exchange reserves stood at $699 billion, providing a cover for more than 11 months of goods imports, and for 97 per cent of external debt outstanding at end December 2024.
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Business Standard
25-06-2025
- Business
- Business Standard
Domestic economic activity resilient amid global flux: RBI report
Economic activity is holding firm in India amid a challenging global environment, and financial conditions remained conducive to facilitate an efficient transmission of interest rate cuts to the credit market, Reserve Bank of India officials said in a report on the 'State of the Economy' in its monthly bulletin. The rate setting panel of the central bank has cut the policy repo rate by 100 basis points (bps) to 5.5 per cent in quick succession between February and June. Moreover, the 100 bps cut in banks' cash reserve ratio requirements to be implemented in phases, starting from the fortnight beginning 6 September 2025, will release primary liquidity of Rs 2.5 trillion. This will reduce the cost of funds for banks, thereby facilitating monetary policy transmission to the credit market, the report noted. 'Overall, financial conditions remained conducive to facilitate an efficient transmission of rate cuts to the credit market,' it underlined. Following the 50 bps rate cut through February and April, the weighted average lending rate on fresh and outstanding rupee loans of scheduled commercial banks declined by 6 bps and 17 bps, respectively, during the period February-April 2025. On the deposit side, the weighted average domestic term deposit rates on fresh and outstanding deposits moderated 27 bps and 1 bp, respectively, during the same period. The report pointed to a significant softening in average bank credit growth to various sectors of the economy between April 2024 and April 2025. While credit growth decelerated in April – notably in the agriculture and services sectors – non-bank sources of credit, including external commercial borrowing (ECB) inflows continued to be healthy, although it moderated from March. Scheduled commercial banks credit growth moderated to 9.9 per cent, as on May 30, 2025 from 16.2 per cent a year ago, and the report attributed this to weaker momentum as well as unfavourable base effects. 'The global economy is in a state of flux, reeling from the twin shocks of trade policy uncertainties and a spike in geo-political tensions,' the report authored by RBI staffers said, with guidance and comments of Poonam Gupta, deputy governor in charge of the monetary policy department. The views expressed in the report are those of the authors, not the central bank, it is clarified. The report said that the optimism from a temporary tariff freeze and trade deals has kept financial market sentiments buoyed in May and early-June 2025, but following the outbreak of the Iran-Israel conflict, heightened uncertainty and volatility have once again gripped financial markets. Highlighting the possibility of a marked deterioration in medium-term economic prospects amidst rising trade barriers, the report said protracted trade policy uncertainties pose the risk of significantly scarring the global economy. 'The intensifying geopolitical tensions too may further debilitate the already-weakened growth impulses. In this context, the trade policy outcomes in July, after the temporary tariff hiatus is over, and the future course of geo-political events would likely shape the medium-term economic prospects,' it averred. 'In this state of elevated global uncertainty, various high-frequency indicators for May 2025 point towards resilient economic activity in India across the industrial and services sectors,' the report said. 'On the domestic front, the provisional estimates released in May have reaffirmed growth to be 6.5 per cent in 2024-25, with a significant sequential pickup in Q4,' it said. Capacity utilisation by manufacturing firms remained above its long-period average, and high-frequency indicators of aggregate demand for May also suggested a pick-up in rural demand, especially given the strong performance of the agricultural sector, the report noted. Among the countries surveyed for the Purchasing Managers' Index (PMI), overall activity expansion was the highest in India with new export orders' uptick in May being an outlier amidst the contraction seen in other major economies. 'All of these indicate considerable resilience of the Indian economy, notwithstanding the global economic, trade, and geopolitical uncertainties,' the report said. Domestic inflation remains benign with headline inflation remaining below the target for the fourth consecutive month in May. 'Steady core [Consumer Price Index (CPI) excluding food and fuel inflation], with indications of some softening after excluding the impact of volatile and elevated gold and silver prices, indicates that underlying inflationary pressures remain muted,' it said. The report further added the external sector continued to be robust, with adequate forex reserve cover for imports and external debt.
Time of India
21-06-2025
- Business
- Time of India
RBI's jumbo rate cut aims to spur spending & investment
RBI MUMBAI: RBI aimed to signal businesses that cheap funds will be available with its double-barrel rate cut earlier this month to boost growth through spending and investment. According to minutes of the monetary policy committee's meeting, the interest rate cut was triggered by signs that companies were deferring investment plans despite rising capacity utilisation even as inflation was expected to undershoot. Continued uncertainty had pushed top executives into what central bank officials described as a 'zone of inaction'. The MPC voted for an unexpected 50-basis-point (100bps = 1 percentage point) cut in the repo rate or the rate at which RBI lends to banks. The MPC also voted to change the policy stance to 'neutral' from 'accommodative' which RBI governor Sanjay Malhotra said gave it room to 'cut, pause or hike rate' depending on evolving conditions. . 'It is expected that the front-loaded rate action along with certainty on the liquidity front would send a clear signal to economic agents, thereby supporting consumption and investment through lower cost of borrowing,' the governor said in the minutes of the June 6-9 MPC meeting. The meeting also offered a glimpse into the policy stance of deputy governor Poonam Gupta, who joined the central bank in April. Her comments suggest a dovish leaning within the current policy context. by Taboola by Taboola Sponsored Links Sponsored Links Promoted Links Promoted Links You May Like What She Did Mid-Air Left Passengers Speechless medalmerit Learn More Undo Gupta underscored the importance of monetary support for accelerating growth, and said policy must help the economy 'attain and even surpass past rates of growth'. She voted for a 50bps cut, citing the need to 'foster policy certainty and faster transmission'. She also flagged the possibility of inflation falling below target. Internal member Rajiv Ranjan also backed a 50bps cut, saying the decline in inflation was sharper than expected, giving the central bank room to focus on growth. He said larger cuts in an expansionary phase are often needed to have the same impact on output as smaller hikes during contractionary periods. According to him, front-loading sends a stronger signal and speeds up transmission. 'It would be appropriate to provide some certainty on the domestic rate and liquidity front so that agents do not delay and postpone their decisions. Literature suggests that uncertainty plays a role in forming the 'zone of inaction',' Ranjan said. Stay informed with the latest business news, updates on bank holidays and public holidays . AI Masterclass for Students. Upskill Young Ones Today!– Join Now
Time of India
20-06-2025
- Business
- Time of India
Frontloading rate cuts is a clear "signal" to boost growth: MPC
India's monetary policymakers used a benign inflation outlook to frontload rate cuts and send a 'clear signal' to productive sectors to boost growth, showed the Minutes of the June 6 meeting that slashed benchmark rates by an outsized half a percentage point. A bigger reduction would also quicken transmission, argued those in favour. 'Given the sharp reduction in inflation over the past few months and the projected reduction in annual average inflation…, it is expected that the front-loaded rate action along with certainty on the liquidity front would send a clear signal to the economic agents, thereby supporting consumption and investment through lower cost of borrowing,' central bank governor Sanjay Malhotra was cited as saying in the Minutes of the Monetary Policy Committee (MPC) published Friday. On June 6, the Reserve Bank of India (RBI) lowered the benchmark repo rate by an unexpected 50 basis points to 5.5% and changed the policy stance to 'neutral' from 'accommodative', going by the majority vote of the MPC. One basis point is a hundredth of a percentage point. "Overall, while a case can be made for two consecutive rate cuts of 25 bps each in this as well as the next policy cycle, there is also merit in front-loading these cuts. Therefore, I vote for a policy rate cut by 50 bps in this meeting" said Poonam Gupta, deputy governor in her first MPC vote, " This should help in fostering policy certainty and faster transmission than a staggered rate cut, and in more effectively countering the challenges emanating from the global economy". Rajiv Ranjan, an internal member on the rate-setting panel, was of the opinion that since monetary policy worked with a lag, under the current circumstances, a 50-bps cut was preferable to two 25-bps cuts for faster transmission. 'Similar to the frontloaded rate hikes during the tightening cycle, frontloading rate cuts could help in hastening transmission by providing decisive signals and confidence to the stakeholders' Ranjan said. The inflation outlook is 3.7% for FY26, lower than the 4% mandated target. The GDP is forecast at 6.5% for the year. In May, the headline consumer price gauge was 2.82%. 'Liquidity Outweighs Rates' Saugata Bhattacharya, who had split ranks with panel members on the quantum of the reduction, voted for a 25-bps rate cut, arguing that boosting durable liquidity would be more impactful on transmission than a steeper reduction in policy rates. 'The RBI's liquidity infusion and other measures have played a key role in this process, partly via lower money market and short-term interest rates, reducing the overall banks' cost of funds,' Bhattacharya, an external member, was cited as saying. 'The RBI data suggests that Rs 9.5 lakh crores of durable liquidity was injected into the banking system since January. In this context, I believe the RBI's assurance of continuing large durable liquidity support is likely to have a more dominant effect on further transmission compared to a deep cut in the repo rate.' The RBI's cumulative 100 bps cuts since February come amidst private investment, especially in manufacturing, and urban consumption, remaining subdued. Additionally, the uncertain external environment has complicated the economic growth outlook for 2025-26, especially due to political tensions and trade war which has impacted job creation. 'A heavier-than-expected cut in policy rate (along with the possible fiscal policy support) would send a clear message that India is serious about supporting economic growth momentum and would spare no effort in terms of policy interventions' said external member Nagesh Kumar, director and chief executive, Institute for Studies in Industrial Development. 'A double dose of rate cut is likely to bring down lending rates significantly, helping to spur the investment and consumption of durable goods.' Decision Dilemma Expectations of further rate cuts have likely delayed the materialisation of demand and investment decisions. 'In such an environment, given the market expectation of a 50-bps rate cut in this cycle, a staggered rate cut can further delay the materialisation of demand and investment decisions,' said external member Ram Singh, Director, Delhi School of Economics. 'By contrast, a front-loaded 50-bps cut in the policy rate is likely to help achieve the twin objectives of supporting demand and growth by reducing the cost of funds for borrowers'. One of the concerns raised was the interest rate differential between India policy rates and the US Fed rates, which could lead to capital flight and can put pressure on the rupee. 'However, given the robust fundamentals of the Indian economy, including a comfortable current account situation, any pressure on INR is likely to be confined to the short run,' Ram Singh said.
