Real interest rates need to climb before RBI's easing cycle begins
Swiss National Bank became the first major industrial economy to unexpectedly reduce rates, raising the question whether the pivot has finally arrived for more central banks around the world to follow the example of its conservative European counterpart.
Ahead of this week's scheduled review meeting of the Monetary Policy Committee (MPC), market watchers and investors are keen to know the timeline for India's rate easing cycle. However, the texture — and driver — of India's robust economic growth rates suggest their wait will perhaps be of some duration. The chances of a rate reduction in the first half of the fiscal year beginning Monday look wafer thin, with policymakers likely waiting for higher neutral rates before nudging the rate lever.
The primary reason behind such overwhelmingly short odds on the 'higher-for-longer' rate trajectory is the nature of the ongoing economic expansion, which has made New Delhi a distinct outlier in a rather circumspect world. For more than 30 straight months, the gauges for purchasing managers have stayed in the expansionary mode, while the percolation effects of unprecedented capital expenditure in helping broad-base the texture of economic growth is becoming increasingly evident.
«Expectations for a fresh round of capex by the corporate sector to take the baton from the government and fuel the next leg of growth are mounting,» said the central bank bulletin for February. «Balance sheets are healthy on the back of high profits, with leverage remaining constant or improving
