What is the Reserve Bank of India's current inflation forecast?

The RBI forecasts inflation at 2.6% for 2025-26, falling below its 4% target.

Why is the RBI cautious about cutting interest rates?

A narrow interest rate differential with the US could lead to capital outflows and impact the rupee's stability.

What policy measures should the RBI consider now?

The RBI should prioritize financial stability, potentially retaining its policy rate and reviewing currency hedging practices.

Home / Business and Economy / RBI Eyes Rate Cut Amidst Growth, But Currency Risks Loom

RBI Eyes Rate Cut Amidst Growth, But Currency Risks Loom

23 Nov

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Summary

RBI projects benign inflation at 2.6% and robust growth at 6.8% for 2025-26.
A narrow rate differential with the US poses risks to currency stability.
RBI must prioritize financial stability over immediate rate cuts.

RBI Eyes Rate Cut Amidst Growth, But Currency Risks Loom

The Reserve Bank of India (RBI) is poised for a monetary policy review with benign inflation and robust growth forecasts. Projections indicate inflation at 2.6% and economic expansion at 6.8% for 2025-26, with inflation expected to rise slightly in the first quarter of 2026-27 while growth remains strong.

Despite favorable economic indicators, a significant rate differential between India and the US, coupled with global economic factors, introduces a strong case for caution. The RBI must navigate the risk of currency depreciation, which could be exacerbated by further interest rate easing. Financial stability has emerged as a paramount concern, influencing policy flexibility and market confidence.

In light of these challenges, the RBI is advised to maintain its policy rate at 5.5%, avoid market interventions that deplete reserves, and review hedging practices. Prioritizing currency stability and financial resilience will provide essential flexibility amidst global economic flux and safeguard investor confidence.