News Brief
RBI Likely To Continue Rate Cuts As Growth Faces Potential Headwinds, Inflation Near Target Range: Report
Reserve Bank of India (RBI) (Representative Image) (Ramesh Pathania/Mint via Getty Images)
The Reserve Bank of India (RBI) is expected to extend its rate-cut cycle as economic growth faces potential headwinds and inflation aligns with the central bank’s target, according to a report by HDFC Mutual Fund, reported ANI.
The report highlights concerns over slowing global growth, particularly as the US economy shows signs of softening.
While growth in the US has remained relatively stable, indicators such as the Purchasing Managers’ Index (PMI), consumption spending, and housing sector data suggest a gradual slowdown.
The report warns that “Policy uncertainty and escalating trade tensions under the new US administration might weigh on growth over time. Thus, there is increasing risk of global growth momentum decelerating.”
It also raises doubts over whether the era of "US exceptionalism", marked by strong economic outperformance, may be coming to an end.
Stable core inflation and a favourable base effect are expected to provide the RBI with sufficient room to maintain an accommodative monetary policy stance.
A key observation in the report is the shifting trend in banking credit growth. In FY24 and the first half of FY25, credit growth outpaced deposit growth significantly. However, this trend has now converged, which could impact liquidity conditions in the financial system.
To ensure sufficient liquidity, the RBI has already injected or announced plans to infuse approximately Rs 5.8 trillion since December 2024. By the end of FY25, durable liquidity in the system is expected to rise to over Rs 1.5 trillion.
