SBI Chairman explains why RBI won't cut rates in 2024
The Reserve Bank of India (RBI) is not expected to reduce the benchmark policy rate (repo rate) this year due to uncertainties surrounding food inflation, according to State Bank of India (SBI) Chairman CS Setty. This forecast comes despite the anticipated first cut in interest rates by the US Federal Reserve in over four years. Setty stated that while a Fed rate cut could influence other central banks, RBI would consider food inflation before deciding on an interest rate reduction.
RBI's rate cut decision may be delayed to Q4 2025
Setty suggested that a rate cut by the RBI might not occur until the fourth quarter of 2025 (January-March), unless there is significant improvement in food inflation. The Monetary Policy Committee (MPC) led by RBI Governor Shaktikanta Das, is set to meet from October 7-9 to discuss interest rates. Retail inflation, a key factor for MPC's decision-making, saw a slight increase to 3.65% in August from 3.54% in July.
RBI maintains repo rate amid food inflation concerns
Despite overall inflation remaining below the RBI's median target of 4%, the price rise in the food basket was recorded at 5.66% in August. This led to the RBI maintaining the repo rate at 6.5% during its August bi-monthly review due to potential risks from higher food inflation. This decision marked the ninth consecutive MPC meeting where a status quo was maintained on rates. On the positive side, wholesale inflation has cooled down to 1.31% in August.
RBI's interest rate decisions based on long-term inflation trends
RBI Governor Das has clarified that decisions on interest rate moderation will be guided by long-term inflation trends rather than monthly data. The repo rate has remained unchanged since February 2023, with four out of six MPC members voting for maintaining the status quo in the last meeting. Two external members advocated for a rate cut, highlighting differing views within the committee.
SBI's stance on subsidiary stake monetization
Regarding the monetization of SBI's stake in its subsidiaries, Setty stated that there are currently no plans to divest any subsidiary stakes. He assured that if these subsidiaries need capital for growth, it will be considered. At present, none of the major subsidiaries require additional funds from their parent company to expand their operations.
