Elevated Inflation is Limiting the RBI’s Actions

The Reserve Bank of India signaled elevated inflation is limiting room to cut interest rates even as its focus may shift to spurring growth as the government implements an overhaul of economic policies.

“The scope for supportive monetary policy action is constrained,” the Reserve Bank of India said in a report yesterday ahead of its interest-rate decision in Mumbai today. “However, as reform actions get executed, monetary policy could increasingly focus on growth revival.”

The central bank report suggests there are “clear risks” to Goldman Sachs Group Inc.’s expectations for a front-loading of rate cuts this month, economist Tushar Poddar said in a note yesterday. While the government has vowed to curb the budget gap to damp price pressures, costlier diesel and risks from a trade deficit will limit the central bank to a 25 basis-point rate cut, according to 30 of 35 analysts in a Bloomberg News survey.


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