RBI Expected to Cut Repo Rate by 25 Basis Points, Says Jefferies
The Reserve Bank of India (RBI) is likely to reduce the repo rate by 25 basis points this year, according to a report by investment banking company Jefferies. This reduction is part of a broader plan to cut rates by a total of 1 percentage point.
Jefferies’ India office predicts that the repo rate will be cut to 6.25% this year, with a cumulative reduction of 100 basis points in the forthcoming easing cycle. The next RBI monetary policy review meeting is scheduled for October 7-9.
The report highlights that the loosening of monetary policy rates may start soon, following nine consecutive meetings where rates were kept steady. The RBI’s formal inflation target is headline Consumer Price Index (CPI), but it is heavily influenced by food prices, which are beyond the control of any central bank.
The RBI projects a 4.5% retail inflation rate for the fiscal year ending March 2025, compared to the official target of 4%, with a tolerance band of 2 percentage points on both sides.
In the monetary policy meeting held in early August, the RBI decided to keep the repo rate unchanged at 6.5%, marking the ninth consecutive time the central bank opted for stability. This decision comes amidst persistent concerns about inflation, which has remained above the RBI’s target range, despite recent moderation.
The US Federal Reserve’s recent decision to cut interest rates by 50 basis points has influenced other central banks, including the RBI, to consider rate cuts. The latest US inflation data for August shows a steady moderation towards the intended target.
Doubts Revealed
RBI -: RBI stands for Reserve Bank of India. It is the central bank of India, which means it controls the money supply and interest rates in the country.
Repo Rate -: The repo rate is the interest rate at which the RBI lends money to commercial banks. When the repo rate is lowered, it becomes cheaper for banks to borrow money, which can lead to lower interest rates for loans to people and businesses.
Basis Points -: A basis point is a unit of measure used in finance to describe the percentage change in interest rates. One basis point is equal to 0.01%. So, 25 basis points mean 0.25%.
Jefferies -: Jefferies is an investment banking company. Investment banks help companies and governments raise money and provide financial advice.
Monetary Policy Review -: A monetary policy review is a meeting where the RBI decides on changes to interest rates and other financial policies to control inflation and support economic growth.
Inflation -: Inflation is the rate at which the general level of prices for goods and services rises. When inflation is high, things become more expensive.
US Federal Reserve -: The US Federal Reserve, often called the Fed, is the central bank of the United States. It controls the money supply and interest rates in the US, similar to what the RBI does in India.