RBI's Rate Cut Delayed to 2025 Amid Fed's Hawkish Stance

A Yes Bank report suggests RBI may delay rate cuts to April 2025, influenced by the Federal Reserve's reduced projected rate cuts and stronger US dollar. The RBI faces challenges in balancing domestic growth with inflation control amid Indian rupee depreciation and global financial volatility.

The Reserve Bank of India (RBI) is likely to postpone its interest rate reduction initiatives until April 2025, according to a new report from Yes Bank. This potential delay is attributed to the Federal Reserve's shift to a more hawkish approach to monetary policy, following its recent decision to cut the policy rate by 25 basis points.

Unlike earlier projections of a 100 basis point reduction, the Fed's forecast for 2025 has been scaled down to just 50 basis points. Federal Reserve Chair Jerome Powell's indication that last December's rate cut decision was keenly debated suggests that while the monetary policy stance remains tight, it is moving closer to neutral, impacting global financial markets.

The US dollar has strengthened and US Treasury yields are experiencing an upswing as markets digest the Fed's future path. This poses difficulties for emerging markets, including India, where the RBI must weigh domestic growth against inflation risks exacerbated by the depreciating Indian rupee and market volatility. RBI's new governor, Sanjay Malhotra, will have to navigate these challenges as he prepares for the central bank's next policy meeting in February 2025.

(With inputs from agencies.)