Home / Business and Economy / RBI Slashes Rates Amidst Strong Growth, Weak Rupee
RBI Slashes Rates Amidst Strong Growth, Weak Rupee
6 Dec
Summary
- RBI cut policy interest rates by 25 basis points.
- Inflation forecast lowered to 2%, growth target raised to 7.3%.
- Rupee depreciated significantly, hitting record lows against the dollar.
India's economic landscape is characterized by a remarkable 'Goldilocks' scenario of record low inflation and robust multi-quarter growth. This favorable environment has empowered the Reserve Bank of India's Monetary Policy Committee to implement a 25-basis-point cut in its key policy interest rate, a move widely anticipated by the market. The central bank also signaled openness to further reductions in the cost of funds.
The Monetary Policy Committee's decision was influenced by record food production and sustained economic momentum, leading to a revised inflation forecast of 2% for the year, down from 2.6%, and an increased economic growth target of 7.3%, up from 6.8%. Governor Sanjay Malhotra emphasized that the favorable growth-inflation balance provides policy space to support growth, expecting interest rates to remain low.
Despite a sharply depreciating rupee, which touched record lows, the RBI stated that it has factored this into its projections and does not target a specific currency level, aiming only for orderly movements. To complement the rate cut and ensure its transmission to the real economy, the RBI also announced measures to inject ₹1.45 lakh crore of durable liquidity into the banking system.
