The Reserve Bank of India (RBI) is expected to keep interest rates the same in its upcoming meeting, set for December 4 to 6, 2024. This is because inflation (how much prices are rising) has gone above the safe limit of 6%, and there have been disappointing reports about how fast the country’s economy is growing.
The RBI, led by Governor Shaktikanta Das, has kept the interest rate steady at 6.5% since February 2023. Experts believe it might reduce rates in February 2025 if inflation shows signs of going down. Madan Sabnavis, the Chief Economist at Bank of Baroda, suggests that given the uncertain global situation and rising inflation, the RBI is likely to hold the interest rate steady this time.
India’s economy has recently grown at its slowest pace in two years, with an increase of only 5.4% in the last quarter, mainly due to poor performances in manufacturing and mining. Despite this, India is still the fastest-growing large economy. Aditi Nayar from ICRA believes the RBI will keep the interest rate unchanged even though growth numbers were disappointing.
The government wants the RBI to keep inflation, based on retail prices, at about 4%, with some room to go up or down. The RBI last raised the rate in February 2023, and it chose not to make any changes in its last review in October due to high food prices.
Dhruv Agarwala, CEO of Housing.com and PropTiger.com, thinks the RBI faces a tough challenge between boosting economic growth and controlling inflation. Although inflation might seem too high for a rate cut, ongoing concerns about slow growth might influence the RBI to reconsider.
Upasna Bhardwaj from Kotak Mahindra Bank highlighted that poor GDP growth reflects disappointing earnings from companies, and while there might be small improvements, overall growth will still fall short of the RBI’s earlier estimates.
In summary, the RBI is likely to keep interest rates steady as it navigates between rising inflation and slowing economic growth.
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