RBI interest rates steady in August due to inflation: Poll

The Reserve Bank of India (RBI) will retain steady interest rates for the ninth consecutive meeting to be held from August 6 to 8, predicted 59 economists who were respondents in the latest Reuters poll. The poll participants felt high inflation is the reason why the RBI would maintain a repo rate of 6.5 per cent, and 57 per cent of the respondents predicted that the central bank would execute the first rate cut around the fourth quarter of FY25.

The poll constitutes the first survey regarding interest rates that was conducted after Union Finance Minister Nirmala Sitharaman presented the Budget 2024 for FY25 on July 23.

FOOD PRICES DRIVE HIGH INFLATION

Uncontrolled rise in food prices drove inflation to 5.08 per cent in June, which marks a five-month high and is much above the RBI’s medium term target of 4 per cent. The poll participants feel, given the economic situation, India’s apex bank would prefer not to relax its monetary policy right now. Incidentally, an earlier Reuters poll had predicted India’s inflation rate would be around 4.5 per cent in FY25 and FY26.

India is Asia’s third-largest economy with a GDP growth rate of 8 per cent, which also makes it the world’s most rapidly growing economy. However, despite the RBI target, experts and industry analysts do not expect inflation to fall to 4 per cent anytime soon, and the RBI should not be in a hurry to cut rates, the economists who were polled have said.

US RATE CUT MAY AFFECT RBI DECISION

The reason 57 per cent of the respondent economists felt the RBI’s first rate cut would happen not before the fourth quarter of FY25 is linked to rate reduction of the Federal Reserve of the United States. The 59 poll participants were of the opinion that the RBI’s first rate cut would occur only after slashing of rates by the US Federal Reserve happened around September this year.