InvestorQ : Do you see the RBI cutting rates in the monetary policy to be announced on October 01?
Arusha Ray made post

Do you see the RBI cutting rates in the monetary policy to be announced on October 01?

Answer
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diksha shah answered.
4 weeks ago


For now, according to a poll conducted by Reuters, it looks like the RBI will keep rates on hold until early next year. That means any rate cut is unlikely either in the October policy or even in the December policy. The idea will be to curb high inflation despite wilting GDP growth.

The big concern for the RBI and the MPC arises from August CPI inflation at 6.69%, which is well above the worst case scenario of the RBI of 6%. That has been the case in 5 out of the last 6 months. This is despite Coronavirus infections spread in India at the fastest pace.

In August, the MPC held repo rates at 4.0% even as it maintained its monetary stance as accommodative. For the June quarter, the GDP was down by a record -23.9% but the RBI appears to be increasingly convinced that fiscal measures are needed more than rate cuts.

In fact, in the Reuters poll, all the 66 respondents had predicted a status quo on rates due to high inflation. Of course, the picture on food inflation could become clearer only once the Kharif output starts coming into the APMC mandis in October this year.

The current situation of high inflation and weak growth is popularly referred to as stagflation. Growth is disrupted by demand inadequacy while prices are high due to supply chain disruptions. That is not a very healthy situation to have.