RBI signals to Delhi that it can’t cut rates before Lok Sabha polls

livemint.com:

Lok Sabha elections due in April 2024, and before that a string of state assembly polls, Raisina Hill would like to see the Reserve Bank of India (RBI) start cutting rates sooner rather than later. Lower borrowing costs will allow it to craft a more election-friendly budget and signal to middle-class families repaying home loans that the cycle of rising monthly installments has ended. RBI’s interest-rate-setting committee has refrained from touching rates for three meetings in a row this year, including in the latest one, held from 8 to 10 August.

It’s been on a pause, as Governor Shaktikanta Das likes to say. Das is a career bureaucrat who spent years preparing budgets with finance ministers in the Manmohan Singh and Narendra Modi governments before heading to Mumbai. New Delhi hasn’t had a more sympathetic ear than him in the RBI in a long time.

But the monetary policy committee which he leads has no wriggle room left. As things stand, despite consumer price inflation briefly hitting the target level of 4%, a rate cut looks increasingly unlikely any time before the upcoming elections. Interestingly, the key message from the three-day August meeting of the MPC is that New Delhi, not RBI, holds the key to early rate cuts.

The MPC delivered quite straightforward messages last week. One, since the RBI has raised its CPI inflation forecasts from 5.1% to 5.4% for the year, as well as for Q2 (6.2%) and Q3 (5.7%), it’s clear that the monetary authority expects inflation will be high in July and August. Before this meeting, the MPC had made it clear that it was not expecting to succeed in reducing inflation to the target of 4% in a stable and durable way even by the end of this year.