The thrust on inflation and taming it at the desired 4 percent mark remains the most important agenda and for reasons beyond control, an unfinished agenda as well. Emphasising that the central bank will not follow the footsteps of its global peers, Das said that considering the stubbornness of inflation is primarily due to food component, repo rate will remain unchanged for the ninth time at 6.5 percent.
“The commitment of monetary policy to ensure price stability would strengthen the foundations for a sustained period of high growth. Hence, the MPC reiterated the need to continue with the disinflationary stance of withdrawal of accommodation to ensure that inflation progressively aligns to the target, while supporting growth,” the RBI Governor said in his speech.
The thrust on inflation and taming it at the desired 4 percent mark remains the most important agenda and for reasons beyond control, an unfinished agenda as well. Emphasising that the central bank will not follow the footsteps of its global peers, Das said that considering the stubbornness of inflation is primarily due to food component, repo rate will remain unchanged for the ninth time at 6.5 percent.
“The commitment of monetary policy to ensure price stability would strengthen the foundations for a sustained period of high growth. Hence, the MPC reiterated the need to continue with the disinflationary stance of withdrawal of accommodation to ensure that inflation progressively aligns to the target, while supporting growth,” the RBI Governor said in his speech.
The thrust on inflation and taming it at the desired 4 percent mark remains the most important agenda and for reasons beyond control, an unfinished agenda as well. Emphasising that the central bank will not follow the footsteps of its global peers, Das said that considering the stubbornness of inflation is primarily due to food component, repo rate will remain unchanged for the ninth time at 6.5 percent.
“The commitment of monetary policy to ensure price stability would strengthen the foundations for a sustained period of high growth. Hence, the MPC reiterated the need to continue with the disinflationary stance of withdrawal of accommodation to ensure that inflation progressively aligns to the target, while supporting growth,” the RBI Governor said in his speech.
- MCLR draws its calculation from overall costs incurred by a bank, including cost of deposits. PSU banks and large private banks, in a bid to protect MCLR, tread carefully on repricing deposits. Despite it being a fight there, banks haven’t seen an increase in deposit rates unlike mid-and small-sized private banks.
- Therefore, in the context of an improving capex, the question is whether a rate cut can prove a critical element in sprucing up demand from corporates and also provide a helping hand to banks on the deposits front.
A rate cut could help in two ways:
- First, an early rate cut could help lenders defend their margins better if they were to focus more on wholesale loans. The circular on project loans may become a reality in FY26 and in a not very petered down form. If rates were cut after December 2024, taking calls on project loans would add to a layer of complexity as transmitting rate cuts can hurt a bank’s profit and loss statement in comparison to transmission of rate hike.
- Second, the froth, which continues to persist in unsecured retail loans, may gradually fade with banks shifting focus to wholesale loans if a rate cut happens sooner.
- Therefore, should the RBI wait for the elephant to comfortably reach the forest?
- There's a downside to this argument. A rate cut at this juncture to support capex may compound inflationary risks. No doubt then that the MPC is in a prolonged catch-22. However, with regulations getting tighter than before, financial institutions shouldn’t end up as the unintended victims of this situation – a problem that India shouldn’t face when it is the brightest growth spot in the global map.