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Key Points

The RBI's decision to keep rates unchanged reflects confidence in India's economic stability. Economists highlight strong domestic demand supported by tax cuts and low inflation. Global uncertainties and potential inflation risks justify the cautious stance. Future rate cuts may only occur if growth momentum weakens significantly.

Key Points: RBI Holds Rates Steady Amid Global Uncertainty and Strong Domestic Demand

  • RBI maintains repo rate amid stable inflation and growth
  • Economists see limited downside risks to 6.5% GDP forecast
  • Domestic demand remains strong due to tax cuts and low inflation
  • Future rate cuts possible only if growth slows significantly
2 min read

RBI's status quo on rates reflects Confidence in economy and Caution amid global uncertainty: Economists

Economists welcome RBI's rate pause, citing confidence in India's economy and caution over global risks. Inflation and growth outlook remain stable.

"The MPC has rightly pushed the pause button as there is no urgent need for another rate cut. – Ranen Banerjee, PwC India"

Mumbai, August 6

As the Reserve Bank of India's Monetary Policy Committee keeps the policy rates unchanged on Wednesday, Economists have largely welcomed the decision to hold the policy repo rate steady, viewing it as a balanced approach.

The economists highlighted that this move reflects both confidence in the domestic economy and caution amid global uncertainties.

Ranen Banerjee, Partner and Economic Advisory Leader at PwC India, said the MPC has rightly pushed the pause button as there is no urgent need for another rate cut.

"The growth forecast has been retained at 6.5 per cent, which may come under some mild pressure but may not be very off, with a 10-20 bps downside risk. Any downsides on the external front are likely to be cushioned from the domestic demand uplift possibilities," he noted.

Banerjee added that domestic demand is likely to remain strong, supported by benign inflation and the trickle-down effects of income tax cuts at the lower end of the income spectrum, where the marginal propensity to consume is higher.

Upasna Bhardwaj, Chief Economist at Kotak Mahindra Bank, highlighted that while inflation is currently under control, it is expected to trend higher going forward.

"The MPC's decision to keep rates unchanged comes in the wake of global uncertainties, even as inflation remains benign and downside risks to growth persists. With inflation likely to trend higher post the near term favourable trends, the bar for rate cuts ahead is set very high. We can see some room for the last leg of easing only if growth momentum slows significantly," she explained.

Sujan Hajra, Chief Economist and Executive Director at Anand Rathi Group, also pointed to a stable inflation outlook and strong growth.

He said, "With medium-term inflation projected to hover around 4 per cent, we expect the terminal repo rate in this cycle to settle near 5 per cent. This points to room for an additional 50 bps reduction, with a further 25 bps cut possible if inflation consistently remains below 4 per cent."

According to him, the current policy environment supports a constructive outlook for both equity and debt markets.

- ANI

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Reader Comments

P
Priya S
As a small business owner, I'm relieved rates aren't increasing. But when will common people see real benefits? Petrol prices still burning holes in our pockets despite "benign inflation" claims.
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Arjun K
RBI is walking a tightrope between growth and inflation. The 6.5% growth forecast seems optimistic to me - rural demand hasn't fully recovered and exports are struggling. But kudos for not bowing to pressure for premature rate cuts!
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Sarah B
Interesting analysis! I'm an expat working in Mumbai and it's fascinating to see how RBI manages monetary policy differently than Western central banks. The focus on domestic demand makes perfect sense for India's economy.
K
Kavya N
All this economic jargon sounds good, but when will EMI rates come down? My home loan is eating up half my salary 😩 RBI should think about middle class families too!
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Vikram M
The MPC deserves praise for maintaining stability. In these uncertain global times, India's steady monetary policy is like an anchor. Let's hope the predicted 50bps cuts materialize next year when inflation eases further.

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