The Reserve Bank of India (RBI) could lower interest rates soon due to falling inflation and weak consumer demand, especially in urban areas. According to a report by ICICI Bank, the current economic situation gives the RBI enough room to cut rates, possibly by 25 basis points in August.
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Why a Rate Cut Could Happen
- Inflation is dropping: Prices, especially of food items like vegetables, pulses, cereals, and spices, are coming down. Food inflation is at -1.1%, the lowest in over 7 years.
- Vegetable prices dropped by 19%, and pulses fell by 11.8%.
- Rainfall is above normal, which could boost cereal production and help keep food prices low.
- Core inflation (which excludes food and fuel) is also easing gradually.
Demand is Weak
- Urban consumers are spending less.
- Exports are facing challenges due to weak global demand, although shipments to the US are steady.
- Domestic economic indicators show mixed results. For example, GST collections fell to a 50-month low in June.
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What ICICI Bank Says
- Since the RBI is following a data-driven and neutral policy stance, lower inflation and weak growth can lead to monetary easing.
- The report suggests that August is the best time for the RBI to cut rates.
- If the RBI cuts the policy rate by 25 basis points, it would bring the benchmark interest rate down to 5.25%.
lower inflation, weak demand, and mixed economic signals may push the RBI to reduce interest rates in August to support the economy.
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