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Published: August 12, 2024
Updated: August 12, 2024

Interest Rate Cut on the Horizon: RBI Expected to Ease Monetary Policy in October

Monsoon Respite and Crop Sowing to Ease Food Inflation

The Reserve Bank of India (RBI) is likely to initiate a rate cut in October, driven by favourable monsoon conditions and increased crop sowing, which are expected to alleviate food inflation. According to a Crisil Research report, this development may lead to a total of two rate cuts in the financial year 2024-25.

Key Concerns: High Food Prices and Inflation

Despite the anticipated rate cut, high food prices remain a significant concern for the RBI. Food inflation has persisted above acceptable levels for an extended period, impacting the disinflation process. The consumer price index (CPI) inflation rate rose to 5.1% in June, primarily due to increased food inflation.

Global Central Banks' Contrasting Stances

The RBI's decision to maintain interest rates unchanged contrasts with the actions of major global central banks. While the European Central Bank and Bank of England have begun cutting interest rates, the Bank of Japan has increased rates, and the US Federal Reserve is expected to cut rates in September.

Favorable Macroeconomic Environment

Crisil anticipates a shift in the economic environment, making it conducive to a rate cut. Although core inflation rates may experience a mild uptick due to increasing freight costs and geopolitical risks, the overall scenario is expected to support a rate cut.

RBI is poised to ease monetary policy in October, driven by improved monsoon conditions and increased crop sowing. While high food prices remain a concern, the anticipated rate cut is expected to support economic growth. As global central banks adopt contrasting stances, the RBI's decision will be crucial in navigating India's economic landscape.