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RBI Eyes Rate Cut Amidst Growth, But Currency Risks Loom
23 Nov
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.
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.
