Is the US heading towards recession? What RBI Governor Shaktikanta Das said

The RBI MPC on Thursday decided to keep its repo rate unchanged at 6.5 per cent for the ninth consecutive time, RBI Governor Shaktikanta Das announced

Reserve Bank of India Governor Shaktikanta Das on Thursday said it’s premature to talk about a recession in the United States, adding that the central bank will make its decisions based on the incoming domestic and international data.

“...If you look at the overall economic growth in the US, I think it is doing quite well. The second quarter numbers in the US were higher than the first quarter and it was about 2.8 per cent...” the RBI Governor said, noting that just one-month data cannot be used to conclude the possibility of an economic downturn. He was referring to the US jobs data for July, which was weaker than expected. In July, the US added 114,000 jobs, much below the Street expectation of 175,000.

Das made the comment during the conference held after the Monetary Policy Committee (MPC) decision announcement earlier today in Mumbai.

The MPC has decided to keep its repo rate unchanged at 6.5 per cent for the ninth consecutive time. The last time this rate was changed was in February 2023. The decision impacts the lending rate at which commercial banks borrow from the RBI.

According to Reuters, there is a possibility that the RBI might choose to cut rates in October. This decision could be partly influenced by the potential rate cut move by the US Federal (RBI equivalent in the US) in its September meeting. 

What’s happening in the US economy?

Following the release of weaker-than-expected jobs data for July in the US, the US Fed on Monday dispelled the speculation that the economy is in a recessionary freefall. However, it said rate cut could be on cards to avoid such a situation. When central banks make lending rates cheaper, commercial banks are able to offer certain loans at a lower interest rate to the consumers, thereby increasing the cash flow in the market.

On the US economy, San Francisco Fed President Mary Daly said on Monday that the US is “not falling off a cliff” adding that the decision-makers are “quite open” to adjusting the policy rate in coming meetings, based on the economic data.

Manoranjan Sharma, chief economist of Infomerics Ratings, believes that this development could have a spill-over effect, including “inducing central bankers to move to a less restrictive policy.”

In last week’s meeting, the US Fed announced to keep its benchmark lending rate unchanged at 5.25-5.50 per cent range.