Economy
RBI Poised To Hold Rates At 5.50 Per Cent, But Economists Flag Scope For Surprise Cut Amid Global Headwinds
RBI headquarters in Mumbai.
The Reserve Bank of India (RBI) is widely expected to leave its benchmark policy rate unchanged at 5.50 per cent when the Monetary Policy Committee meets this week.
Yet, some analysts suggest the central bank may spring a surprise by trimming rates, pointing to subdued inflation and mounting risks to growth from global trade tensions.
Reuters reported that nearly three-quarters of economists expect a pause. However, several major banks — including Citi, Barclays, Capital Economics and SBI have kept alive the prospect of a rate cut, describing it as a form of "insurance" against external shocks.
The RBI has already lowered rates by 100 basis points since January, but investment activity remains sluggish. Liquidity conditions tightened after the August review, when the central bank opted for a pause and maintained a neutral stance.
India’s economy expanded by 7.8 per cent in the June quarter, stronger than forecast. But economists caution that this number may exaggerate underlying momentum, since it reflects adjustments for lower inflation.
With US tariffs of up to 50 per cent on Indian exports and higher visa charges clouding the outlook, economists argue the RBI may prefer to act pre-emptively rather than wait for the fallout to fully unfold.
Inflation remains comfortably below the RBI’s 4 per cent target and could ease further following recent cuts in GST rates.
Soumya Kanti Ghosh, Chief Economist at SBI, said a rate cut would project the RBI as a forward-looking institution but stressed the importance of careful messaging.
Bond and swap markets have yet to price in easing, but traders expect a rally if the central bank delivers a surprise.
