RBI Hesitant on Rate Cut Amid Food Inflation Concerns

The Reserve Bank of India (RBI) is unlikely to lower the benchmark policy rate in 2024 due to uncertainties over food inflation, according to SBI Chairman C S Setty. This follows the US Federal Reserve's expected rate cut, which may influence other central banks. Despite overall inflation being below the RBI's target, food inflation remains a concern.

The Reserve Bank of India is expected to maintain its benchmark policy rate in 2024, largely due to uncertainties surrounding food inflation, as stated by State Bank of India Chairman C S Setty.

The anticipated cut in interest rates by the U.S. Federal Reserve - the first in over four years - may prompt other central banks to follow suit. However, the RBI is taking a cautious approach.

Setty emphasized that while a Fed rate cut could influence global monetary policies, the RBI will carefully consider food inflation before making any rate cut decisions. He indicated that a rate change is likely delayed until Q4 2025, pending significant improvements in food inflation.

The RBI's Monetary Policy Committee, led by Governor Shaktikanta Das, is scheduled to meet from October 7-9 to discuss interest rates. Retail inflation slightly increased to 3.65% in August from 3.54% in July—figures still below the RBI's median target of 4%. However, food inflation rose to 5.66% in August.

The RBI has maintained the repo rate at 6.5% since February 2023, and the next committee meeting marks the ninth consecutive instance of retaining the status quo. Four out of six MPC members recently voted in favor of no change, while two external members suggested a rate cut.

Governor Das reiterated that any moderation in interest rates would depend on long-term inflation trends rather than monthly data. On SBI's capital situation, Setty dismissed the idea of divestment from subsidiaries but noted the bank's readiness to supply growth capital if required.

(With inputs from agencies.)