Interest rate cut at this stage could be premature, highly risky: RBI Chief

• At a time when consumer price-based inflation (CPI) is expected to remain above 5 per cent, and growth holding on, a cut in the interest rate would be “premature, and very risky”, Reserve Bank of India (RBI) Governor Shaktikanta Das said Friday.

Highlights:

• At a time when consumer price-based inflation (CPI) is expected to remain above 5%, Reserve Bank of India (RBI) Governor Shaktikanta Das emphasized that a cut in interest rates would be premature and risky.
• Speaking at the India Credit Forum hosted by Bloomberg, Das discussed the current inflationary pressures and the country's growth trajectory, stressing caution in the central bank’s monetary policy.

Key Highlights:

Retail Inflation and Growth Outlook:

• Retail inflation surged to a nine-month high of 5.49% in September, up from 3.65% in August.
• Inflation is expected to remain elevated in October before moderating in November.
• Despite inflationary concerns, India's growth remains resilient, with a projected growth rate of 7.2% for the year.

Monetary Policy: No Rate Cut for Now:

• Critics have suggested that the RBI may be behind the curve in its monetary policy approach by not cutting rates. However, Das rejected this notion, highlighting that reducing the repo rate while inflation is high would be "premature and very risky."
• The repo rate has been maintained at 6.5% for 20 consecutive months, with the RBI taking a "wait-and-watch" approach.

Inflation Vigilance:

• Das reiterated that the RBI’s priority is to ensure that inflation aligns durably with the 4% target. While inflation has shown signs of moderation, the central bank remains vigilant about potential risks that could disrupt this trend.

Monetary Policy Stance Shift to ‘Neutral’:

• In its October meeting, the RBI’s Monetary Policy Committee (MPC) kept the repo rate unchanged but shifted the policy stance to ‘neutral’ after maintaining a "withdrawal of accommodation" stance for 28 months. This change reflects the RBI’s intention to stay flexible and data-driven in response to evolving economic conditions.

Caution Against Early Rate Cuts:

• Das was asked about economists' projections of a possible rate cut in December, to which he humorously responded that the RBI doesn’t intend to "miss the party" but would rather ensure any participation is based on durable economic stability. He emphasized that future actions would depend on incoming data and a thorough assessment of the inflation outlook.

Prelims Takeaways:

• Monetary Policy Committee meeting
• Repo Rate, MSF