RBI Urged to Cut Rates as India's Demand Slows Amid Global Uncertainty
As global uncertainty and high interest rates affect growth, India faces weakening demand. Despite healthy corporate cash flows, reduced demand has slowed capital and operational spending. The RBI is advised to reduce the repo rate by 25 basis points to stimulate growth, amid surplus liquidity and a benign Balance of Payments scenario.
- Country:
- India
In an uncertain global economic climate, marked by elevated interest rates and policy unpredictability, India is grappling with slowing demand despite steady corporate cash flows. This scenario has led to a decline in both capital expenditures and operational spending, posing challenges for economic growth.
In light of these conditions, a report by Nuvama recommends that the Reserve Bank of India (RBI) implement a 25 basis point cut in the repo rate. The suggestion comes as demand metrics, including credit growth, auto sales, and real estate sales, exhibit signs of fatigue, amid a soft inflation environment that remains below 4% on a three-month moving average basis.
The report forecasts that the repo rate could fall to a range of 5-5.25% over time, emphasizing the importance of monitoring this easing trajectory. Additionally, the improvement in the Balance of Payments and surplus liquidity signifies room for rate reductions. Experts agree that while rate cuts may support the economy, a quick revival in demand is unlikely, as fiscal policies tighten and export prospects remain uncertain.
(With inputs from agencies.)
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