Last Update: March 11, 2023, 4:34 PM IST
Most economists believe the RBI will hike rates to bring down inflation, which has been fueled by food prices in the recent past.
Soumya Kanti Ghosh, chief economic advisor at SBI Group, says he does not see an end to the Fed’s rate hike cycle in the near term, which makes a case for the RBI to consider disengagement.
SBI Group Chief Economic Advisor Soumya Kanti Ghosh said the RBI should “pause and think” whether it can continue with the US Federal Reserve’s “stroke by stroke” in terms of rate hikes or disengagement from the US central bank.
Ghosh said he doesn’t see an end to the Fed’s rate hike cycle in the near term, which makes a case for the RBI to consider disengaging.
“My point is, can we match the Fed stroke with stroke? At some point we need to stop and think whether the impact of earlier rate hikes (by the RBI) has trickled down into the system… I think the Fed There is no end in sight to the cycle of rate hikes any time soon, it could be three or more rate hikes going forward,” Ghosh said.
He was speaking at a session organized by the India Chamber of Commerce here. In January 2023, the country’s inflation rises to 6.52 per cent, which is above the RBI’s tolerance level of 6 per cent. This comes after inflation remained above 6 per cent for 10 out of 12 months in 2022.
Most economists believe the RBI will hike rates to bring down inflation, which has been fueled by food prices in the recent past. The US Federal Reserve has also been raising rates and has in fact been more aggressive than the RBI, raising policy rates by 4.5 per cent since March 1 last year.
“If you look at the 2008 cycle, you will see that central banks raised rates, but when they cut rates, they did so based on country-specific factors… RBI needs to think that Can we break away from the Fed or see if we are aligning with them,” Ghosh told PTI on the sidelines of the event.
He said that RBI has increased interest rates by 250 basis points since May 2020 and the cycle is still going on. Right now the repo rate is 6.50 percent.
“We need to ensure that there is an end to this rate hike cycle and it should be based on data, otherwise at some point of time it may harm India’s economic recovery,” said a senior SBI official.
On speculation about a possible global recession and its impact on India, Ghosh said that in such a situation there is talk of a slowdown in exports, but a recent SBI report suggests otherwise. He said the study took into account 19 export items and found 14 of these to be “macro-agnostic” (agnostic to the global trade cycle).
“This indicates that even if global growth declines, exports will not decline significantly… One reason for this is the increase in agricultural exports, which are generally not sensitive to global factors,” Ghosh said.
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