The Reserve Bank of India (RBI) might cut interest rates further in the coming months as inflation was well under control and the recent spell of external volatility was unlikely to hurt India, NITI Aayog member Bibek Debroy told FE. “I have a feeling that policy rates would be cut by the RBI,” Debroy said.
An encouraging start to the southwest monsoon and the trimming of crude prices recently has stoked expectations that the RBI might consider lowering rates in its August 4 policy review.
There were concerns that external volatility on account of the instability in Chinese equity markets, Greece debt crisis and US Fed rate hike worries, could result in capital outflows from India and weaken the rupee. After initially reacting negatively to these external developments, India’s stock market and currency have recovered much of the lost ground.
Debroy’s comments came as some analysts opine that external risks might make the central bank go slow on easing policy rates further. The RBI has cut interest rates by 75 basis points so far this year (the repo rate is 7.25% now).
Under the Monetary Policy Framework Agreement with the government, the RBI is targeting to keep CPI inflation below 6% by January, 2016. In May, India’s retail inflation stood at 5.01%, while wholesale inflation continued to remain in negative territory for the seventh month in a row, at -2.36%.
Though the RBI would be cautious due to external risks, Debroy felt it might not reverse the easing policy stance because of Greece and China concerns.