RBI stays pat on rates to ensure sustained cooling of inflation

The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) made no changes to its policy rates and stance in today’s meeting. The RBI remains steadfast on ensuring sustained cooling of inflation amid sticky food inflation.

The RBI’s status quo is in contrast to the shift in monetary policy stance of other major global central banks. While the European Central Bank (ECB) and Bank of England (BOE) have initiated a rate cut, the Bank of Japan (BoJ) has raised its policy rate, and the US Federal Reserve (Fed) is likely to cut rates this September.

Inflation remains a key gauge for the RBI’s MPC decision, with elevated food prices the biggest hurdle in shifting its stance. Food inflation has been persistently high for over a year now, and the RBI remains cautious of its direct and indirect impact on disinflation process.

However, better monsoon and higher kharif sowing vs last year is expected to ease food inflation this fiscal, with the picture becoming clearer by September. Extreme weather events, including excess rainfall, remain a monitorable, though. Globally, the Fed rate cuts from September will also provide more room for the RBI to cut rates.

We see the RBI cutting rates starting October 2024 at the earliest, and expect a total of two rate cuts this fiscal.