Economy

RBI May Keep Interest Rates Steady Despite Potential US Fed Tightening

India’s Chief Economic Adviser, V Anantha Nageswaran, indicated in a recent interview that the Reserve Bank of India (RBI) is unlikely to raise interest rates, even in response to potential tightening by the US Federal Reserve. He emphasized that RBI’s decisions are guided by India’s strong external finances and overall financial stability, rather than being contingent on the actions of the Fed.

Nageswaran noted that even a modest increase of 25 basis points by the Federal Reserve would not trigger a similar response from the RBI. The Federal Reserve is contemplating further rate hikes due to persistent inflation exceeding its 2% target and robust economic growth. In contrast, the RBI has held its policy rate steady at 6.5%, adhering to a strict monetary policy framework until inflation returns to the midpoint of its target range of 2-6%.

The Chief Economic Adviser also highlighted that India’s economy, expected to grow over 6% this year, benefits from solid macroeconomic fundamentals and stable oil prices. He mentioned that the RBI’s forecasts are based on an oil price of $85 per barrel for the latter half of the fiscal year, despite the average price of India’s crude oil basket being $90.08 per barrel as of October.

Additionally, Nageswaran addressed rumors regarding potential handouts from Prime Minister Narendra Modi to farmers and lower-income households ahead of the 2024 elections, asserting that there would be no easing of fiscal policy. This statement reinforces the government’s intention to maintain fiscal discipline while also fostering economic growth.

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