DNA Money Edit: Are we at the end of rate-cut cycle?

As widely expected, the RBI's Monetary Policy Committee has decided to leave the repo rate (the rate at which it lends to banks) unchanged, though in a split vote, and retain the neutral stance of monetary policy, given many an upside risk to inflation. Loan waivers, implementation of pay commission allowances, and post-GST price revisions have all contributed to the prospect of higher inflation. Recent cut in retail prices of petrol and diesel may cringe the exchequer, but will surely pull down inflation. The spatial distribution of monsoon also poses a serious concern as insufficient rainfall in some regions has led to lower water levels in some leading reservoirs, putting winter crops at risk.

What is worrying however is the way Reserve Bank of India revised downwards its forecast for economic growth for the financial year to 6.7%. The real gross value added (GVA) growth slowed significantly in the first quarter, despite having cushioned partly by the extensive front-loading of expenditure by the central government. Now, the central bank wants more data to "better ascertain the transient versus sustained headwinds in the recent growth prints".

Domestic consumption is likely to remain the chief driver of economic growth in the current financial year as an upturn in investments remains elusive.