Rising inflation does not give the Reserve Bank the chance to cut interest rates at the next policy review in February and for the rest of FY26, a senior economist said on Wednesday. Axis Bank chief economist Neelkanth Mishra, who is also a part-time member of the Prime Minister’s Economic Advisory Council, stressed that the change of guard at the RBI will not cause any deviation and added that the institution’s capacity is very strong.
A rate cut will not happen in the “next 13-14 months” due to the inflationary trend, he said, adding that the inflation rate for FY26 will be 4.5 percent.
Except for the third quarter of FY26, when the headline number will cool to 4 percent of the RBI’s target at the high end, the headline number will be between 4.5-5 percent till the end of FY26 leaving little room for the rate. cutting, he told reporters here.
Even if the RBI cuts rates with an eye on stimulating growth, a 0.50 percent cut in its key rates will not be a “decisive” step to help the growth process, he said.
“If you move to reduce prices, it should be a decisive decision. A reduction of 0.50 percent is not here anymore,” he said.
Unlike other economists, who believe that the seven-quarter GDP growth at a low of 5.4 percent has led to a slowdown in growth, Mishra said he still considers 7 percent as a trend growth and added that the country will achieve FY26 after growing at 6.6 percent in FY25.
Explaining the reasons for the decline in growth, Mishra said that the concerted tightening by the fiscal and monetary authorities had contributed to it. He said the Center has slowed down, and other regulatory actions of the RBI are also damaging.
Growth hit a hole in Q2, he said, adding that it will be investment activity, not consumption, that will lead overall economic growth.
He said there is sufficient appetite in the corporate sector to invest in capacity expansion, given the high levels of consumption across many sectors.
The total transfer of funds made by the states to women will increase to Rs 2.5 lakh crore in FY26 from Rs 2 lakh crore planned in FY25 per year, he said, pointing out that other states like Bihar, which will also vote soon, will take such a step.
On the monetary management side, Mishra hinted at limited intervention from the RBI, pointing out that the rupee has been very stable against peers, and added that he expects the currency to further depreciate to Rs 86.5 a dollar by the end of FY26.