RBI needs to signal change in approach, policy stance
Do you think it is the right time to start cutting rates? What are your expectations?
I believe RBI will give two cuts of 25 bps, one in January and one in March. I think time has now come for RBI to signal a change in the approach or stance of the policy. RBI has so far been proved right in all steps it has taken and its concerns over inflation have been well founded. The only point here is that if it still hold rates, growth could get damaged irreversibly.
There are visible deterents to rate cuts like impact of fuel price hike on headline inflation...
The fuel price hikes may not necessarily drive up inflation. Diesel price hike is redistribution of money as subsidy element gets reduced. The fiscal deficit is the bigger problem here. Of course, in the short-run, the headline inflation will go up. There is certainly that risk, but even when it does, the fiscal side response will be more positive.
Will banks pass on the rate cut as deposit growth is low?
I think transmission to lending rates would automatically follow. And it will happen very quickly. Banks’
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