The RBI Governor has insinuated that a cut in the repo rate may not be on the anvil in the near term.
Key Highlights
- The RBI governor mentioned that the Central bank is not thinking of cutting the repo rate as of now.
- He mentioned that he’s uncertain about how long the interest rates will stay elevated.
- He emphasised the need to strike a balance between price stability and financial stability.
Speaking at the Kautilya Economic Conclave 2023, the RBI Governor, Shri Shaktikanta Das mentioned that the repo rate hikes since 2022 are still finding their way into the financial system.
Technically ruling out a possible reduction in the prevailing interest rates, the governor cited a persistent inflationary trend that requires a vigilant approach from the Central Bank.
He said, “I think interest rates will remain high. How long they will remain high only the evolving world situation can tell.”
The RBI governor also mentioned that the policy-making exercise is getting more complex, with a balance to be struck between price and financial stability. His comments assume significance in light of the persistent inflation and a global slowdown.
While on one hand, a global slowdown requires low interest rates to boost demand, an inflationary trend on the other hand requires higher interest rates to subdue demand to tame inflation.
Speaking on the need to strike a balance, he mentioned that both price and financial stability reinforce each other in the long term.
Global Factors in determining the Repo Rate
The reluctance of the Central Bank to reduce the repo rate is also influenced by the outlook of the Central banks globally.
The Fed has indicated that the interest rates may stay elevated for a longer period, until the targetted inflation rate is achieved. Unless the RBI keeps its interest rates in sync with other banks, there could be a possible flight of money from the country due to the attractiveness of higher interest rates elsewhere.
The Central Bank is also wary of the geopolitical risks that could have a spill-over effect.
There is also the possibility of Gulf powers being drawn in the Israel-Hamas war, threatening the supply of oil that could again lead to an uptick in inflation globally.
