The much-anticipated interest rate cut by the US Fed has taken place and the extent has not been a cautious 25 basis points but by a fair 50 basis points. The question now on many lips – will the Reserve Bank of India (RBI) follow suit and slash rates too, especially after retail inflation went down 4% in August?
The Indian central bank has been holding key Repo Rate at 6.5% since May 2023. Starting April 2022 the RBI kept pushing the Repo Rate up from 4.0% to reach 6.5%.
EMIs will go down
If RBI slashes interest rates, the benefit will be transmitted down to the general public, who can expect EMIs to go down on home loans, auto loans and personal loans, which is expected to boost consumption levels in the economy.
Not only will future loans become cheap, but also will ongoing loans – almost all of which are now on floating rates – benefiting just about all debtors.
Food inflation still the villain
However, experts doubt whether the Monetary Policy Committee (MPC) – the 6-member body that decides interest rate movements in India – will take the same decision that FOMC of the US Fed took on Wednesday night, the key restraining concern being that of food inflation. Food inflation stood at 5.66% in August 2024. Significantly, it was at 9.94% in August 2023.
Shaktikanta Das, the governor of the RBI, has been repeatedly warning of volatile food inflation and it is unlikely that he will rush to a cut following the Fed. In fact, Jerome Powell, the chairman of the US Fed, too, resisted clamours for a rate cut for months as inflation in the US was not showing signs of declining close to the 2% target that they have. The Fed went for the cut only after inflation in August same to 2.5% levels.
SBI chairman cautious
C S Setty, the chairman of the country’s biggest lender, State Bank of India, thinks RBI will not rush to a rate cut this year. In an interview to PTI, the SBI chief said that food inflation is the main fear.
“On the rate front, a lot of central banks are taking independent calls. While Fed rate cut would influence everyone, RBI would be mindful of the food inflation before taking a call on interest rate cut,” he remarked.
There is a growing clamour for interest rate cuts by the Indian central bank too, but inflation concerns are plaguing RBI before wielding the axe. Biz News Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
