December MPC Meet: Will RBI Cut Rates? 'Golden Opportunities Missed...' says Economist PK Basu

Noted economist PK Basu is of the view that the Reserve Bank of India (RBI) missed two 'golden opportunities' to cut rates when the core and headline inflation were 4 per cent. Speaking exclusively to Republic Business, Basu, Founder-Chief Economist, REAL-Economics.com said that the RBI will have to 'think twice' before cutting rates in the forthcoming Monetary Policy Committee (MPC) Meet. RBI MPC For December 2024 is slated to take place between December 4-6.

RBI MPC Rate Cut: ‘There was no reason not to do it…’ - Basu

"The RBI missed two golden opportunities to cut rates when there was no reason not to do it. If you had core inflation below 4 per cent and headline below 4, then you should have cut rates. There were two opportunities. Now in December, they will have to think twice as now the inflation is up," Basu said.

Adding that there has been a ‘policy error in not cutting rate in August and October’ when there was an opportunity to cut rate, Basu said that core inflation has been well below 4 per cent since December last year. "So the tightening of monetary policy has worked. Food inflation is something that is outside monetary policy control. Since they have not cut rates, the impact is seen in corporate earnings. EPS is growing at a slow rate. This also means that valuations look stretched. We have 10-15 per cent growth on YoY, now they are 4-5 per cent," he added.

The Impact On Markets Decoded - ‘…if investors want to invest in China, they have to withdraw from India’ - Basu

Citing that the shift of global investors towards China has been one of the major reasons behind the selloff in the Indian markets over the past three months, Basu said that interest rates are an important factor behind low earnings during the quarter for India Inc.

"For the last 2-3 months, the major factor is that FIIs have had the opportunity to invest in China. Ever since China began to see investor perception improving, there has been downward pressure on India. In Emerging Markets (EM), the two big ones are - India and China. So if investors want to invest in China, they have to withdraw from India," he said.

Noting that the domestic investor has become savvy and has started investing in the market via SIPs and mutual funds, Basu said that FIIs are trimming their India positions, also because of a 'fundamental factor'. "The fundamental factor for India is that interest rates are high and while the US has cut rates twice, RBI has not. This is despite the fact that for 2 months, the headline inflation was below 4 per cent... India will still be the fastest-growing economy in the world. But we should be growing 8 per cent in the minimum and 9 per cent ideally. Let's try to grow 8-10 per cent," he added.