‘Global risks, core inflation prompt RBI to hold rates’
mumbai: Reserve Bank Governor Sanjay Malhotra said continuing global uncertainties, frontloading of interest rate cuts, and uptick in core inflation prompted the central bank to opt for the status quo at the bi-monthly policy review on Wednesday.
Speaking to reporters at the central bank headquarters here after announcing the policy review, Malhotra affirmed the Reserve Bank of India’s (RBI’s) commitment to support growth, and added that the GDP expansion at 6.5 per cent is slower than what is aspired for.
The six-member monetary policy committee (MPC) will continue to be vigilant and continue watching all the incoming data to take an appropriate call on rates, Malhotra said, even as a growing number of analysts opine that the possibilities of a cut in rates are slimming down.
Listing out the reasons for the unanimous call of holding rates, Malhotra said, “We did a front-loaded rate cut of 1 percentage point over a short period of four months from February to June. Transmission is still happening.”
Pointing to tariff negotiations and the clouded geopolitical aspects, he said the global uncertainties on this issue continue, he said.
Additionally, the rising core inflation also played a part in the policy decision which dashes borrowers’ hopes of a decline in their outgoes.
On growth in home loans, the mainstay of retail lending, Malhotra said the RBI feels growth in the segment will be “very good” at 14 per cent as it is outpacing the system.
He added that it takes longer for lenders’ rate offerings to reflect all the cuts done by the RBI and then for homebuyers to make their decisions on long-term purchases, hinting that credit to the sector will grow more.
He said the sharp decrease to 2.1 per cent in the headline number for June is more because of the cooling of food inflation.
He maintained that both headline and food inflation numbers are important and the RBI continues to watch that.
A rate cut would have aided GDP expansion, and Malhotra affirmed the RBI’s commitment to do whatever is required.
“We will continue to do whatever is required in such a scenario. Of course, trade negotiations are still continuing. We are hopeful that we will have an amicable solution,” he said.
