Pause now, lower later: Rate cuts may start this year, say economists

RBI projection on GDP growth optimistic, say analysts

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Delhi
2 min read Last Updated : Apr 18 2023 | 12:33 PM IST
‘Higher for longer’ may be the narrative in the developed markets, but interest rates might not stay high for very long in India, with a section of the market expecting rate cuts to begin this year.
The six-member Monetary Policy Committee of Reserve Bank of India (RBI) decided to keep interest rates unchanged at 6.5 per cent in the April review – after hiking the policy repo rate in six previous meetings.
 

RBI Governor Shaktikanta Das emphasised that the pause was only for the April policy and that the central bank was ready to act if the situation demanded.
“The RBI decision to pause has effectively punctured the debate of ‘higher for longer’ so that we eventually lead to ‘lower for later/longer’,” said Soumya Kanti Ghosh, group chief economic advisor of State Bank of India.
 

“As of now, we expect a data dependent policy hereon. However, as headline inflation is expected to stay below 6 per cent for almost most of FY24, an extended pause could be a pragmatic outcome. But we must also remember that any overhang of global slowdown could have a domestic feedback loop, and that could spark counter-cyclical rate action,” Ghosh told Business Standard.
It is the global slowdown that prompted some analysts not to agree with the RBI’s growth projection. The RBI seems to be more sanguine on growth, and has projected gross domestic product (GDP) growth of 6.5 per cent for FY24, revised upward from 6.4 per cent projected in February, on the assumption of lower oil price of $85 per barrel, as compared to $95 per barrel earlier.

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Topics :RBI repo rate

First Published: Apr 18 2023 | 12:33 PM IST

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