RBI Anticipates Deeper Rate Cuts Amid Slower Economic Growth

The Reserve Bank of India (RBI) is poised for deeper interest rate cuts to counter sluggish economic growth and stable inflation, according to a report by Morgan Stanley. This countercyclical policy approach aims to bolster the economy during downturns.

Morgan Stanley anticipates a total rate cut of 100 basis points in the current easing cycle, which includes two upcoming cuts of 25 bps each. The repo rate is expected to drop to 5.5 percent. The report highlights potential for further reductions if global growth weakens, especially if a U.S. recession impacts India's growth.

Beyond rate cuts, the RBI may deploy additional tools to sustain economic momentum, such as ensuring financial liquidity and easing credit regulations. Meanwhile, fiscal policy is predicted to adhere to fiscal consolidation goals, with an emphasis on increasing capital expenditure to fuel growth. Although monetary easing is crucial, it might not entirely mitigate the slower growth impact, suggesting ongoing flexibility in RBI's economic strategies.

(With inputs from agencies.)