Economists expect RBI to hold rates steady, rule out near-term policy hike
Mumbai, July 14
Leading economists have stated that the Reserve Bank of India is locked into a tight operational balancing act and is widely anticipated to maintain a status quo in interest rates in its upcoming Monetary Policy Committee meeting.
In an exclusive interview with ANI, the experts highlighted that despite the twin pressures of a volatile West Asia crisis and relentless supply-side inflation, a resilient domestic growth engine is currently providing the central bank the necessary cushion to maintain a "wait-and-watch" approach rather than panic-react.
Faced with a classic growth-versus-inflation dilemma, the analysts explained that India's domestic momentum is holding its ground against global storms.
Rajani Sinha, Chief Economist at CareEdge Ratings, emphasised that high-frequency indicators continue to look robust.
"So far, growth numbers remain healthy. We haven't seen a material impact on growth; Q4 GDP data was better than expected, and high-frequency indicators look robust," Sinha said.
However, the inflation dragon is far from slain, keeping policymakers on high alert.
Dipti Deshpande, Senior Director and Principal Economist at CRISIL Ltd, underscored that the central bank's eyes remain trained squarely on price stability.
"Growth is going down, inflation is going up. And RBI is very clear that its mandate is to look at inflation, the part that is likely to hurt the economy the most," Deshpande explained.
For market watchers hoping for a dramatic policy shift, the consensus is clear that immediate rate cuts or aggressive adjustments are off the table.
Deshpande ruled out any near-term changes, stating, "No hike this coming MPC, no hike this calendar year".
Instead, she expects the central bank to quietly pull alternative operational levers, noting, "In this cycle of the three broad tools that the RBI has been largely using, we believe it will resort to rate action the least, and it will resort to communication and it will resort to liquidity management the most".
Sinha agreed that with crude oil swinging wildly and the monsoon up in the air, the RBI has no reason to gamble.
"Given these uncertainties, we expect the RBI to maintain a 'wait-and-watch' approach in the upcoming meeting and hold rates steady. The RBI has consistently emphasised that it will remain strictly data-dependent," Sinha said.
She added that any eventual policy action would likely be pushed "towards the end of the fiscal year" only if supply-side pressures threaten to permanently deform core consumer prices.
Perhaps the most fascinating insight shared by the economists is how India is structurally insulating itself from historical vulnerabilities. While an erratic monsoon still threatens to push food inflation toward a 7 per cent peak in the third quarter, Sinha pointed out a vital macroeconomic evolution.
"Over the years, the direct impact of a weak monsoon on overall economic growth has structurally reduced compared to a decade or two ago," she observed.
Deshpande concurred, revealing that aggressive government market interventions--like strategic buffer stock releases and trade curbs--are breaking the traditional link between poor rainfall and runaway food markets.
"The relationship between monsoon weakness and food inflation rise is weakening. Why that is happening is that government intervention is changing the equation," Deshpande said.
Coupled with a trade deficit that, despite crossing USD 30 billion, is safely neutralised by booming services and non-oil exports, the experts paint a picture of an economy under pressure, but entirely under control.
— ANI
Reader Comments
As an economist watching from the US, I find India's balancing act fascinating. The move to use liquidity management and communication instead of just rate changes shows serious policy maturity. Other emerging markets should take notes.
The monsoon-food inflation link weakening is a big deal for a farmer's son like me. My father still remembers 2009 when crops failed and prices skyrocketed. Government buffer stock interventions actually help now. But let's not get complacent - climate change is real.
Interesting read. I'm a bit skeptical about how much longer this "wait-and-watch" approach can work if crude oil keeps jumping. That said, India's domestic demand story is genuinely strong. My company's exports to India have grown 40% this year.
Finally some measured reporting on the economy. I was tired of all the panic articles about inflation. Yes, prices are high, but the RBI has tools. The real challenge is for us common people - we need jobs that pay enough to handle these times. 📈
Good article but I wish they'd talk more about the common man's struggle. My monthly grocery bill has gone up 25% in one year. Experts sitting in AC rooms talk about "policy levers" - we need price relief on dal, onions, and cooking oil. That's the real inflation. 😤
D