RBI should think about front loading its rate cuts

On the non-food side as well, the outlook is benign. Brent crude oil is currently trading at under $65 a barrel with worries over global demand weighing heavily. This suggests that both food and fuel inflation are likely to be under control. Further, core inflation (excluding food and fuel), which is currently hovering around 4 per cent, is also likely to remain subdued. Some analysts expect a surge in Chinese exports to keep prices under check.

While inflation may remain under control, there is considerable uncertainty on the growth front. The trade wars unleashed by US President Donald Trump are likely to have an impact on global growth. This will affect exports in the near term. Investment activity may also become hostage to uncertainty as firms may opt to wait to see how the tariff wars play out and how China responds. In its April meeting, the monetary policy committee voted to cut the benchmark repo rate by 25 basis points to 6 per cent. The committee had begun to cut rates in the February policy. The inflation projections released alongside the committee meeting show that the central bank expects inflation at 4 per cent in 2025-26. In his comments after the last meeting, the RBI Governor had said that “there is now a greater confidence of a durable alignment of headline inflation with the target of 4 per cent over a 12-month horizon”. All this indicates the room for deeper cuts. In this environment, the MPC could perhaps consider front loading its rate cuts.