RBI MPC Expectations: 'Right Time To Cut Rates...' - Economist PK Basu | GDP Data

India's economic growth slowed to 5.4 per cent in the second quarter of FY25, which is below the projected 6.5 per cent growth rate in the same quarter. Throwing light on GDP growth of 5.4 per cent, renowned economist and author PK Basu remains optimistic about the future, citing the country’s underlying growth momentum and the positive impact of robust kharif agricultural production on inflation. In the backdrop of low GDP, the clamour for rate cut by the RBI has risen and economists and experts are seeking rate cuts as soon as possible. 

Basu on Rate Cuts

Basu in conversation with Republic Business critiqued the Reserve Bank of India (RBI) for its decision to keep interest rates unchanged despite the inflation and growth trends. “Headline and core inflation was below 4 per cent, the RBI should have cut rates both in August and October, but they did not,” he remarked, suggesting that the central bank missed an opportunity to stimulate growth further. Basu also pointed out that the continued high interest rates for an extended period have had a significant impact on economic activity, saying, “It’s too high for too long; there is no hiding the fact that the policy has contributed significantly.”
Despite his concerns over the RBI's delayed rate cuts, Basu remains cautiously optimistic about the economy’s future performance, as growth is expected to pick up later in the year, 

Slower Growth but Evidence of Underlying Momentum

Basu acknowledged that growth has slowed, but he believes the slowdown is a "one-off event." He emphasised that the long-term economic outlook remains positive, pointing to the "underlying growth momentum" that persists within the economy. "Rest of the year, growth will pick up," he said, suggesting that the slowdown could be temporary and should not overshadow the broader recovery trend.

Kharif Crop and Inflation Moderation
The economist highlighted the impact of a good kharif crop in India, which is expected to bring inflation down. “With the good kharif crop, we will see inflation moderating,” Basu stated, referencing the important agricultural harvest that is likely to stabilize food prices and ease inflationary pressures in the coming months. Inflation, particularly headline and core inflation, remains under control, with both metrics sitting below 4 per cent, providing further room for optimism.