RBI’s monetary policy? The RBI is mandated to keep inflation at 4%, at average, and definitely between 2% and 6%. For the second straight month, it’s been below the lower end of that tolerance band. Meanwhile, it has been below 4% for nine consecutive months. That should give the central bank enough room for a rate cut in its next policy review, in order to support faster growth. It also puts pressure on the RBI to use that space, with all sights on what it does next.
To some, these low rates of inflation are a signal that RBI’s policy is too tight. A rate cut, they argue, would help nudge inflation back towards the ‘normal’ 4% — which is the essence of inflation targeting. If you let such low levels of inflation to persist, you risk people developing “deflationary psychology” — where they cut down their spending, anticipating even lower prices. This can be as catastrophic to an economy as hyperinflation. Right now, real interest rates in India are among the highest in the world. Long-term real bond yields are similarly elevated. With borrowing costs this high, people might put off investment and consumption — unnecessarily stifling economic activity. After all, with finance costs this high, many would refuse to put their money to work unless they can get exceptional returns. A rate cut could change things, by making capital cheaper. According to Sanjeev Sanyal, who is on the economic advisory council to the Prime Minister, if Indian bond yields fell to levels commensurate with fundamentals — closer to those in low-inflation countries — it could save about 200 bps in financing costs across the economy. To this camp, failing to cut now might be a lost opportunity to support growth — in an environment where there’s virtually no inflation cost. But there are complications that the RBI is mindful of. For one, despite the low rate of inflation right now, people’s high inflation expectations complicate the RBI’s decision-making process. If consumers expect 7–8% inflation, that’s how they’ll behave. They’ll demand higher wages and hike prices. This makes inflation expectations a self-fulfilling prophecy — what people believe actually shows up in the economy. This means that the policy room RBI has is, in fact, limited. Today’s low inflation comes from transitory factors — an exceptional monsoon, rate cuts, base effects etc. Given people’s beliefs, it could suddenly take off once again. The RBI already eased policy earlier — only to find that it didn’t have the effect it hoped for. Between February and June 2025, the central bank cut the repo rate by a cumulative 100 bps, bringing it down from 6.50% to roughly 5.50%. Perhaps because people expected high inflation, however, this barely showed up in the economy’s interest rates. All the cuts this year only pushed the 10-year government bond yield down by about 20–25 bps. Meanwhile, Bank of Baroda’s economists note that the lending rates for new loans are down only ~88–90 bps. The full impact of its rate cuts, in other words, still aren’t fully visible. Since then, the RBI has adopted a “wait and watch” stance, keeping rates steady. KR IRS 5626 On Thu, 4 Jun 2026 at 21:39, Suryanarayana Ambadipudi < [email protected]> wrote: > Duet > > > > *A.SURYANARAYANA* > *The less you speak,the more you are listened to* > > On Thu, 4 Jun 2026 at 9:08 PM, Indrajit Ghose <[email protected]> > wrote: > >> >> On Thu, 4 Jun, 2026, 8:33 pm Dr Sundar, <[email protected]> wrote: >> >>> >>> >>> So what if the rupee touches 100 to a dollar? It's just a number." >>> >>> — Dr Shamika Ravi, PM Economic Advisor >>> >>> If ₹100 per dollar is "just a number," then inflation is just a feeling. >>> >>> Then why is her master crying for reducing usage of petrol/diesel and >>> stop buying gold >>> >>> So what if I slap her? Its just some atoms colliding atoms. >>> 😁😃 >>> >>> No doubt indian economy is suffocating being handled by these kind of >>> elements >>> >>> Namaskaram >>> >>> >>> *"KNOW THYSELF .* >>> *SELF KNOWLEDGE IS REAL KNOWLEDGE.* >>> *ALL OTHER KNOWLEDGE IS IGNORANCE AND THEY ARE NO KNOWLEDGE " * >>> *~~~ Bhagavan Ramana* >>> >>> >>> -- >>> You received this message because you are subscribed to the Google >>> Groups "societyforservingseniors" group. >>> To unsubscribe from this group and stop receiving emails from it, send >>> an email to [email protected]. >>> To view this discussion, visit >>> https://groups.google.com/d/msgid/society4servingseniors/CAF%3D8Bw1AmDhY%2BNzaGqGqsiThucx39EtaF5RWtxihzVWBoTugMA%40mail.gmail.com >>> <https://groups.google.com/d/msgid/society4servingseniors/CAF%3D8Bw1AmDhY%2BNzaGqGqsiThucx39EtaF5RWtxihzVWBoTugMA%40mail.gmail.com?utm_medium=email&utm_source=footer> >>> . >>> >> -- You received this message because you are subscribed to the Google Groups "Thatha_Patty" group. To unsubscribe from this group and stop receiving emails from it, send an email to [email protected]. To view this discussion visit https://groups.google.com/d/msgid/thatha_patty/CAL5XZoo5%3DV%2B%2BGF4tbCqaBDMA3effvrPxbY0_puGXb%2BtOYJfAnw%40mail.gmail.com.
