The report highlighted that headline inflation remained at uncomfortable levels, making an immediate rate cut unlikely. He suggested that the RBI’s monetary stance should remain neutral, favoring growth without radically changing its policy approach. return of accommodation in the policy),” he said.
The removal of the “refusal of accommodation” clause in the last policy meeting has already provided a basis for support for the development. The report also predicted that the first rate cut could happen in February 2025, in line with its earlier estimate outlined in a policy paper from October.
According to the report, as the Indian economy faces growing growth slowdown and geopolitical risks, a knee-jerk reaction such as an immediate rate cut may not be prudent. Despite expectations for inflation to moderate after November, headline inflation levels are still considered high enough to warrant cautious policy-making.
“It is better that Q2 growth data does not signal a knee-jerk reaction to fiscal stimulus as headline inflation continues to trade at uncomfortable levels due to rate cuts,” the report said. has been, although it is expected to moderate from November.” The report said. It also emphasized the need to realign liquidity management strategies.
It pointed out that while a reduction in the cash reserve ratio (CRR) could serve as a possible option, the RBI has previously expressed reservations about using the CRR as a broad liquidity management tool.
Instead, the report suggested a more nuanced approach, suggesting that the RBI could consider changing the CRR requirements on specific liabilities on a micro-basis and making the tool counter-cyclical.
This approach could offer a more balanced strategy for liquidity management while addressing inflation and growth concerns.” While a cut in the CRR would be a real option, the central bank has expressed in no uncertain terms in the past. “The use of headline CRR as a liquidity management tool may not be the ideal approach,” the report said. RBI’s stance and actions will be closely watched as it navigates the upcoming MPC meeting. The complex dynamics of inflation control and economic growth.