RBI Rate cut expected even as inflation jumps up

Mumbai: The Reserve Bank is expected to administer another dose of lending rate cuts to boost the revival process from the Covid-19-induced economic downturn.

Economists and industry experts pointed out that despite an elevated level of inflation, growth concerns will necessitate the RBI's Monetary Policy Committee to go in for another rate cut. The MPC is expected to release its resolution on the monetary policy after their meet August 4-6.

The easing, if administered, will theoretically allow commercial banks to reduce their lending rates, thereby, helping both consumers and the industry to get cheaper finance. Subsequently, the increased money flow in the hands of consumers will help to boost sales and demand, and for the industry, provide for higher capital investment on the back of lower cost. Nonetheless, the retail inflation data has been at an elevated level during June, and this might be a key factor for dissuading the MPC from going in for a large rate cut.

"It would be a tough decision for the MPC, as inflation has risen on account of supply chain disruption. 'Life and Livelihood' - both are at stake," said Sunil Kumar Sinha, Principal Economist, India Ratings & Research. "However, we reckon that the accommodative stance will be maintained."

Data showed that India's June retail inflation stood at an elevated level. The retail or consumer price index stood at 6.09 per cent in June. The urban CPI stood at 5.91 per cent and rural at 6.20 per cent.