Scope for providing more monetary boost to growth: MPC member Ram Singh

Ram Singh signals potential for multiple rate cuts in FY26-FY27, citing low inflation and scope for accommodative monetary policy to support growth

Ram Singh, director, Delhi School of Economics, and a member of the Reserve Bank of India’s (RBI’s) Monetary Policy Committee says if lower FY27 inflation estimates are reinforced in the RBI’s inflation forecast, that might create the space for more than one additional cut. In an interview with Manojit Saha, Singh said a change in stance to “accommodative” is desirable to suggest an increased likelihood of additional rate cuts in this easing cycle. Edited excerpts:

 

You have voted for the “accommodative” stance. There is a view that a rate cut can happen even if the stance is “neutral”. So there is no need to change the stance. What is your view?

 

I think a change in stance to “accommodative” is desirable to suggest an increased likelihood of additional rate cuts in this easing cycle. Such a signalling would add to the sustainability of the growth momentum on multiple counts. For one, it will give a further push to the transmission of the 100 basis-point policy rate cut, thereby strengthening the income and demand effects of the rate cuts. Besides, expectations of a rate cut will likely put downward pressure on bond yields, thereby enhancing the appeal of the bond market to borrowers seeking to raise funds through market instruments. So, a change in stance has the potential to boost economic activities by intensifying and extending the current easing cycle.

 

In the minutes you said a further rate cut today ran the risk of an overdose. Do you think by December it may not be seen as an overdose? What could be the pre-condition for a rate cut?

 

We have to watch developments on four fronts. The first is the depth and breadth of the transmission of the 100 basis-point cuts in policy rates to the financial and real sectors of the economy. The second is changes, if any, in the inflation trajectory for the coming quarters. The third is the growth rate of gross domestic product. The fourth is developments on the external front. The transmission of the previous rate cuts is satisfactory. Any continuation of the benign inflation trajectory and/or any stress on growth would further strengthen the case for additional rate cuts, ceteris paribus. It is difficult to provide any forward guidance on the external front.

 

Where do you see the terminal rate at this point in this easing cycle? Do you see any scope for more than one rate cut?

 

The scope of a cut is there. The headline inflation rate (1.54 per cent) is at more than an eight-year low in September. The expectation for October is 0.2-0.6 per cent. Such a low level of inflation is good neither for businesses nor for public finances. For 2025-26, market expectations for the headline inflation rate are significantly lower than the RBI’s estimate (closer to 2 per cent as against the RBI’s estimate of 2.6 per cent at the time of the last MPC) and more for FY27 (3.7-3.9 per cent as against the RBI’s estimate of 4.5 per cent). If these estimates, especially for FY27, are reinforced in the RBI’s inflation forecast, it might create the space for more than one additional cut. However, given the high degree of uncertainty on the external front, it is difficult to quantify the quantum of further cuts.

 

There is a view that the window to cut rates is small, given that prices will start inching up from the first quarter of next financial year. Do you agree?

 

Hopefully, the incoming price data would help answer this question. The current inflation forecast suggests that the retail inflation rate will bottom out by the end of this financial year. However, if the incoming data lead to a downward revision of the rate for FY27 (say to 3.7-3.9 per cent as mentioned above), there will be a longer window for choosing the timing of the rate cuts.

 

With inflation in check, do you think the MPC should focus more on supporting growth, keeping in mind price stability?

 

Yes, there is scope and a case for providing an additional monetary boost to growth while keeping price stability in mind.