RBI should not cut rates now

By: Arjun Parthasarathy

The worst possible confidence booster is a rate cut now. Reserve Bank of India (RBI) should hold on to its stance of managing rising inflation expectations despite a sharp fall in economic sentiments globally. A rate cut at this juncture will be seen as a knee jerk reaction to a crisis that has not happened yet. A rate cut will pull down the Rupee, worsen investor confidence in the RBI, take up bond yields and will not achieve anything. Turkey cut rates unexpectedly last week, and the result is a central bank fighting to contain selling pressure on the currency.

The 125bps rate hike over the last three months is indicating RBI