The Hindu

‘RBI at end of rate-cut cycle, fiscal steps must for recovery’

High inflation unlikely to decline materially: SBI economists


The Reserve Bank is at the end of its rate-cut cycle as inflation is unlikely to decline materially from the current level, and the onus of economic recovery has now shifted to the government, economists at SBI said.

The comments come a day after the release of the minutes of the latest meeting of the RBI’s Monetary Policy Committee, where high inflation was cited as the prime reason for the unanimous decision to hold rates. The Reserve Bank of India (RBI) had cut rates by 1.15% in two moves since the onset of the pandemic in March this year in order to push economic growth, but surprised many by holding rates at the August review as inflation overshot its target.

“Fiscal policy should play a decisive role, if we have to nurture any hopes of a fastpaced recovery,” economists at the SBI said.

“We now believe that we are at the end of the rate-cut cycle and expectatio­ns of large rate cuts must be anchored as inflation is unlikely to decline materially from current level,” the SBI economists said, hinting at best there can be a 0.25% more of rate cuts in the offing.

The economists said they feel inflation — which came at 6.9% for July — could be sticky because their estimates show the large procuremen­t by the government may have resulted in 0.35-0.40% upward impact.

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