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RBI Slashes Rates Amid 'Goldilocks' Economy
6 Dec
Summary
- RBI cut policy interest rate by a quarter point.
- Inflation forecast lowered to 2%, growth target raised to 7.3%.
- Rupee depreciated to record lows past 90 against the dollar.
The Reserve Bank of India's rate-setting panel has implemented a quarter-point cut in its policy interest rate, aligning with expectations. This decision was made amidst a favorable economic climate of record low inflation and robust growth, often termed a 'Goldilocks' economy. The central bank also indicated openness to further reductions in borrowing costs.
Driven by record food production and economic momentum, the RBI revised its inflation forecast downward to 2% for the year, while simultaneously raising its economic growth projection to 7.3%. Governor Sanjay Malhotra highlighted the favorable balance of growth and inflation as providing policy space to bolster economic momentum, suggesting a future of low policy rates.
To facilitate these rate cuts reaching consumers, the RBI committed to increasing liquidity in the banking system through swap deals and open market operations. While the Indian rupee has experienced significant depreciation, touching record lows, the RBI reiterated that it does not target a specific currency level, focusing instead on orderly movements. This policy action aims to sustain economic momentum while safeguarding price and financial stability.
