Reserve Bank analysts warn against rushing to cut interest rates

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MUMBAI: Any rush to cut interest rates could prove dangerous. Those clamoring for a cut in interest rates are ignoring short-term increases in inflation due to volatility in food prices, said a report prepared by RBI Deputy Governor Michael Patra and other RBI analysts.

Votes that interest rates should be cut threaten the Reserve Bank's efforts to bring inflation back to its target. The task of bringing inflation down to its target is not over yet. The Chairman of the American Federal Reserve, Jerome Powell, may have hinted at reducing the interest rate, but the analysts of the Reserve Bank are not in a mood to reduce the repo rate at home. He has stuck to his view of keeping interest rates high for a long time.

According to analysts, inflation will not come down to the four percent target in the next financial year either. In the first quarter of financial year 2025, the retail inflation will be five percent, while the second quarter will be 4.70 percent, the third quarter will be 4.80 percent and the fourth quarter will be 4.90 percent, according to the report.

This may mean no cut in the repo rate in the next financial year, the report noted.

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