Rate cut with 7% of growth never happened in India or globally: SBI report
After the Reserve Bank of India projected more than 7 per cent of GDP growth for the entire financial year 2024-25, State Bank of India (SBI) in its report has said that histrorically a rate cut with such a high growth has rarely, if ever, occurred in India or globally. The report also noted that it raises an interesting question as to whether RBI is preparing the grounds for an ensuing rate cut harmonizing with current momentum in growth. The report raises the intriguing possibility that the RBI might be laying the groundwork for a rate cut, despite the strong momentum in economic growth.
It points out that such a move would be unprecedented, apart from a brief period in 2016 when a new Monetary Policy Committee (MPC) had taken over. It stated ‘This raises an interesting question as to whether RBI is preparing the grounds for an ensuing rate cut harmonizing with current momentum in growth.’ The scenario is particularly noteworthy because, in most countries, including India, rate cuts typically occur when economic growth is slowing down, not when it is accelerating.
It highlighted that, barring the case of the Philippines, countries that have implemented rate cuts generally did so when their GDP growth was lower than the average of the preceding four quarters. In contrast, India’s projected growth remains robust, making the possibility of a rate cut all the more unusual. Besides, the report suggested that the RBI may be strategically offering markets ample time to prepare for an eventual shift in monetary policy. With foresight, the central bank appears to be signaling that it is keeping a close watch on both growth and inflation dynamics, possibly hinting at future policy adjustments
