RBI Weighs Shallow Rate Cuts Amid Global Caution

The Reserve Bank of India might implement shallow rate cuts in its February 2025 meeting due to global economic caution. While the US Federal Reserve's hawkish tone impacts the Indian rupee, easing domestic inflation may provide room for balanced growth support.

The Reserve Bank of India (RBI) is contemplating shallow rate cuts during its next Monetary Policy Committee (MPC) meeting in February 2025, according to a report by Sharekhan, a capital markets firm. The decision comes amid a globally cautious economic climate.

The report observes that the US Federal Reserve's recent 25 basis points rate cut, paired with an unexpectedly hawkish tone, reflects heightened inflation concerns amid a robust US economy. This stance has fortified the US Dollar Index, exerting additional pressure on the Indian rupee and elevating the risk of imported inflation.

The RBI, faced with these dynamics, is likely to opt for moderate rate adjustments rather than sharp cuts to address both growth challenges and inflationary risks. On the domestic front, retail inflation, measured by the Consumer Price Index (CPI), has decreased to 5.5 percent in November 2024 from 6.2 percent in October, primarily driven by a reduction in food inflation.

The RBI's monetary policy outlook anticipates a continued easing of food inflation starting from the fourth quarter of FY25, revising its CPI inflation projection for FY25 upward to 4.8 percent from 4.5 percent, considering persistent inflationary pressures.

The recent decrease in CPI inflation and the expected continued easing trend could provide the central bank with the leeway to consider rate cuts, supporting India's slowing economy. "The moderation in CPI and food inflation may aid overall CPI easement, potentially facilitating rate cuts," the report remarked, aligning with growth concerns.

The MPC will carefully weigh growth challenges while prioritizing inflation control, with the February policy meeting attracting considerable attention as the RBI seeks to harmonize growth and price stability. (ANI)

(With inputs from agencies.)