Can India's central bank be a lone wolf on policy measures as US mulls rate cut?
Reserve Bank of India’s rate-setting panel on December 6 commenced the fifth meeting this financial year. India’s relatively favourable macroeconomic indicators give the central bank even more confidence to chart its own path, even as it remains wary of worrying external factors.
Retail inflation eased from a four-month-high in October at 4.87 per cent while India’s gross domestic product (GDP) growth rate trumped analyst expectations in Q2FY24 at 7.8 per cent. The Monetary Policy Committee’s priority is clear, as said by the RBI Governor Shaktikanta Das, inflation over growth and draining out excess liquidity from the system.
To this extent, the RBI is expected to keep benchmark lending rates unchanged, for the fifth straight time. The MPC’s decisions have been in stark contrast to some advanced economies, who continue their fight to tame sticky price pressures. Moreover, MPC members have perhaps afforded doing so as it has enjoyed optimism on certain high-frequency indicators in the fastest growing major economy, while key global economies are sailing in rough seas.
Independent, domestic perspective
Even as many advanced economies continued hiking rates to fight inflation, the RBI paused early on.
In a bid to cool prices post Covid-19 pandemic, the RBI cumulatively hiked benchmark interest rates by 250 basis points since May last year before keeping it unchanged at 6.50 per cent since February, with continuous focus on inflation and liquidity management.
RBI's Das in December 2022 had made it amply clear: India does not depend on other central banks, but only domestic factors when it comes to hiking or holding rates.
The United States Federal Reserve in its November policy meeting held rates steady at 5.25-5.5
