Interest rate cut unlikely before 2024: S&P

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Mumbai: Interest rate cuts in India are expected to begin early next year. The Reserve Bank of India (RBI) would prefer to see inflation come down to around four percent before cutting interest rates.

Softening crude oil prices and reduced demand will bring down fuel prices and inflation. The cycle of inflation and interest rate hikes has reached its peak. But we expect the Reserve Bank to start cutting interest rates in early 2024 as its first target is to bring down inflation to four percent, said a report issued by S&P.

S&P expects India's inflation to fall to five per cent in fiscal 2023-24, assuming the current year's monsoon will be normal. Inflation was 6.70 percent in the last financial year.

As inflation and the reduction in the fiscal deficit have reduced the pressure to increase interest rates, the demand for a cut in interest rates is increasing. However, keeping in mind the high interest rate situation in America and the hanging risk of inflation, the interest rate is not likely to decrease soon, the report further states. India will be included in the list of fastest growing emerging countries with an average economic growth rate of 6.70 percent during the period April 2023 to March 2027.

The medium-term growth rate appears to be strong. In financial year 2023, India's economic growth rate has been 7.20 percent. Meanwhile, Reserve Bank's Monetary Policy Committee (MPC) member Asima Goyal also said that inflation below five percent will give the Reserve Bank an opportunity to cut interest rates.

He said in an interview that the RBI will be confident of reducing the repo rate only if the retail inflation remains below five per cent.

The economy will grow at the rate of six percent

S&P Global Ratings has maintained India's GDP growth forecast at 6 percent. The rating agency also said that India's growth rate will be the highest in the Asia Pacific region. The rating agency has cut China's growth forecast for 2023 to 5.2 percent from 5.5 percent.

In its quarterly economic review for Asia-Pacific, the rating agency said, we estimate that India, Vietnam and the Philippines will grow at around six per cent. The medium-term growth outlook remains relatively solid. Emerging market economies in Asia remain among the fastest growing economies in our global growth outlook through 2026.


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