RBI Governor Das Emphasizes Caution on Rate Cuts Despite Growth Slowdown
In the minutes of the October Monetary Policy Committee (MPC) meeting, Reserve Bank of India Governor Shaktikanta Das stressed the need for a cautious approach to lowering interest rates, citing concerns about inflation. Despite early signs of an economic slowdown, Das emphasized that the central bank cannot risk another bout of inflation.
The MPC maintained the key interest rate at its October meeting but shifted its policy stance to "neutral," signaling the possibility of future rate cuts. This shift was prompted by indicators suggesting steady economic activity in the second quarter of FY25, driven by government spending and corporate investment.
However, Das cautioned that high-frequency indicators point to continued momentum in food prices, potentially keeping headline inflation high in October. He expressed optimism about the outlook for food inflation beyond the short term, citing improved prospects from the kharif and rabi seasons.
Das also noted that core inflation is likely to remain contained, indicating stability in the Indian economy. He expressed confidence that headline inflation will align with the 4% target later this year and early next year.
Despite these positive signs, Das reiterated his stance that rate cuts could be premature. He emphasized the need for flexibility and more evidence of inflation aligning with the target before considering any rate reductions.
Other MPC members echoed Das's concerns. External member Saugata Bhattacharya acknowledged the ongoing battle against inflation but expressed confidence in eventually achieving the target. RBI deputy governor Michael Patra cautioned against reducing monetary policy restraint too quickly, as it could negate progress made on disinflation.
Patra expressed confidence in growth revival, attributing the recent slowdown to temporary factors like heavy rainfall and the pitrupaksha period. He expects consumption to receive a boost during the festival season, rural demand to strengthen, and investment to be buoyed by government capital expenditure.