RBI focuses on liquidity boost and growth support; rate cuts likely if inflation eases
A review of the growth-inflation dynamic by the MPC places a bigger downside risk on the former, which calls for a tactical response where a strategic one is not immediately available.
Hence, the lowering of cash reserve ratio (CRR) to pull interbank rates down closer to the policy rate, and higher interest rate ceilings for foreign currency deposits to ease pressure of the dollar's rise and capital outflows on the rupee.
This keeps a policy rate cut in play — as early as this coming February — if the recent spike in food prices subsides as anticipated by the end of the year. Any overemphasis of the growth slowdown will create room for RBI to pace monetary easing.
India is headed for a shallow interest-rate adjustment that needs to pack enough punch to deliver a growth impetus. Last-mile disinflation may become easier with the global economy entering an energy market downcycle, while the growth scenario becomes more uncertain over geopolitics and protectionism.
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