RBI's Das & Co rate easing cycle may be influenced by potential Fed rate cut delays
Federal Reserve to cut rates is likely to weigh on RBI’s decision on starting its policy rate easing cycle. After Morgan Stanley and Kotak Bank, even IDFC Bank expects RBI to ease its rate easing call. Strong economic growth and escalated tensions in West Asia could add to inflation risks and delay rate cuts by the Reserve Bank of India could also weigh on the central bank's decision.
Federal Reserve Chair Jerome Powell on Tuesday did not provide any guidance on when interest rates may be cut, saying instead that monetary policy needs to be restrictive for longer
Economists are now factoring in a possible delay in policy rate cuts by the RBI, which has kept it unchanged since February 2023 at 6.5%. They were expecting the central bank to start lowering rates from the second half of FY' 2024-25
" The Fed chair’s comments confirmed that the Fed is likely to remain on a prolonged pause with US core inflation print coming higher than expected. The earliest the Fed rate cut cycle could begin would be September, as they would have five more CPI prints by then" said Gaura Sengupta, chief economist at IDFC Bank." Against this backdrop, the start of the RBI rate cut cycle also gets delayed to October 2024. By October there will be more clarity on Fed policy as well as domestic food inflation risks."
From India's monetary policy perspective, a sustained slowdown in inflation, which is now trending closer to the RBI target of 4%, had raised hopes of an interest rate cut. But India’s real GDP has grown by over 8% for three
