The Reserve Bank of India may change its rate policy in the upcoming months. It is based on changes in growth and inflation. Governor Sanjay Malhotra stated that rate decisions will be based on the latest data. Additionally, it will rely on the overall state of the economy.
He made these comments after June inflation data showed the slowest increase in more than six years. The main cause of it was the decline in food prices. Therefore, if inflation is lower than the central bank expects or if growth slows, interest rates may be reduced.
RBI Rate Policy May Shift With Inflation Trends
The RBI’s governor, Sanjay Malhotra, emphasized that the bank will continue to use data to inform its flexible rate policy. He noted that policy adjustments might be required if economic growth slows or if the inflation prediction is not fulfilled.
He also spoke the day after consumer price inflation plunged to a multi-year low. The announcement caused the currency and bond markets to level off. The yield on 10-year bonds remained steady at 6.31%. On the other hand, the rupee moved up marginally to 85.82 versus the US dollar.
Market sentiment indicates caution. Analysts disagree on whether an immediate interest rate cut is warranted, given the inflation decline. Despite the encouraging trend, the August 6 policy meeting remains uncertain.
Can Weak Growth Push India Toward a Rate Cut?
The central bank has already cut the benchmark repurchase rate by 100 basis points since February. This included a policy change to a hawkish neutral stance and a 50-point cut in June.
The Governor later clarified that future rate cuts are possible if inflation continues to ease. Despite the initial misunderstanding brought on by the June policy change. Malhotra reaffirmed this position and said the RBI is still willing to change its inflation prediction.
The RBI will need to strike a careful balance between fostering fragile economic growth. Additionally, it must control inflation before acting further. Forex traders and market participants will be closely monitoring each data release.
Could Inflation Data Trigger India’s Next Big Move?
The RBI may relax its rate policy if inflation is below forecast or growth seems weak. At the meeting on August 6, will the central bank take action? In the upcoming weeks, real-sector signals and inflation trends will play a major role. Bond and forex markets might soon price in a rate cut, but the RBI will probably proceed cautiously.
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