Higher-for-longer Rates Can Delay Easing Of Financial Conditions: Crisil
Major central banks are awaiting decisive signals of inflation easing and growth softening to cut rates
As major central banks wait for decisive signals of inflation slowdown and growth softening to cut rates, Crisil Ratings in a report has said that higher-for-longer rates can delay the easing of financial conditions.
The United States (US) — a crucial player that drives the global financial conditions — is not likely to see the first rate cut before December, according to S&P Global. While US inflation showed signs of moderation in April, it remained above the Fed’s 2 per cent target.
Robust growth momentum and resilient labour markets remain an upside risk to US inflation, the rating agency stated. In contrast, headline inflation in India has been within the RBI’s target range of 2 to 6 per cent for the past eight months.
However, food inflation remains stubbornly high. Though in April the headline inflation moderated to 4.8 per cent from 4.9 per cent in March, food inflation rose to 8.7 per cent from 8.5 per cent.
The RBI will wait for the risks to food inflation to ebb before cutting rates. The initial forecast of an above-normal monsoon this year offers hope. However, the heatwave and other extreme weather events remain a risk, it added.
“We expect the RBI to cut rates twice in the second half of this fiscal. Meanwhile, the impact of the past monetary tightening is expected to be seen across sectors. As evident in April, bank lending rates are still rising and credit growth moderating,” Crisil stated.
The RBI’s regulatory measures to clamp down on risky bank lending in certain segments are also expected to contribute to the moderation in credit growth and overall growth this year. Nevertheless, India’s inclusion in the global bond indices this year and low external vulnerability are expected to support the country’s financial markets, it added.
