Will RBI Cut Interest Rates Again? Governor’s Hint Fuels Speculation Amid Easing Inflation
In a recent interview, Reserve Bank of India (RBI) Governor Sanjay Malhotra dropped a hint that the central bank may consider further interest rate cuts if inflation falls below projections or economic growth falters.
The statement has sparked speculation among investors and traders about the possibility of another rate cut, following the RBI’s recent decision to lower the benchmark repo rate by 50 basis points in its June meeting.
Why is the RBI considering another rate cut?
Malhotra emphasized that the RBI’s primary mandate is to maintain price stability, while also acknowledging the importance of economic growth. He noted that the monetary policy committee will factor in the evolving situation, outlook, and decide what the economy really needs.
If inflation undershoots forecasts or economic momentum weakens, the RBI may consider a rate cut to boost growth and stimulate the economy.
What’s driving the RBI’s decision?
India’s retail inflation has been easing, driven by a decline in food prices. In June, inflation fell to its lowest level in over six years, prompting the RBI to revise its inflation forecast for the year.
The RBI has also maintained its GDP growth forecast of 6.5% for FY26, citing favorable monsoon conditions, optimism in consumer surveys, and ongoing trade deals.
What’s the current interest rate scenario?
The RBI has lowered the benchmark repo rate by 100 basis points since February, including a 50 bps cut at its June meeting. The current repo rate stands at 5.5%.
The RBI is committed to aligning overnight borrowing costs with the benchmark repo rate and aims to manage liquidity through absorption or injection as required.
What’s next for the RBI?
Malhotra revealed that the central bank is reviewing its rules on bank ownership, including proposals to allow foreign strategic investors to raise their stakes in Indian banks. Currently, foreign investors can hold up to 74% in private banks, but strategic investors are capped at 15%. The RBI is considering relaxing this limit to 26%, subject to regulatory approval.
The RBI is also reviewing its liquidity management framework, with an internal committee expected to publish its findings by the end of July.
As the RBI continues to navigate the complex economic landscape, investors and traders will be closely watching the central bank’s next move. Will the RBI take the plunge and cut interest rates again, or will it maintain its hawkish stance? Only time will tell.
