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Not too long ago, Reserve Bank of India (RBI) Governor Shaktikanta Das said the Indian central bank may not cut interest rates even if the US Federal Reserve, which manages monetary policy in the world’s largest economy, does so.

That was a bold statement. At that time, the US Fed rate moves were only a wide guess.

There’s more clarity now.

On Wednesday, the minutes of the Federal Open Market Committee (FOMC) meeting during July 30-31 showed that there is a strong convergence among the members on the rate approach. It showed the US central bank is on track to cut rates in September with a “vast majority” of the members agreeing to such an action likely.

Even more important, the minutes showed some members would have been willing to cut rates at the July meeting. Remember, the FOMC left the key benchmark interest rates unchanged in the 5.25-5.5 percent range on July 31.

The minutes come along with the lacklustre US jobs data which showed the economy added far fewer jobs in 2023 and early 2024 than previously reported.

Markets will get more certainty on the Fed’s thinking when Chairman Jerome Powell speaks at Jackson Hole on Friday. The tone cannot be too different from what we saw in the minutes.

Back to Mint Road, it will be interesting to know whether Das and his colleagues at the MPC would still ignore the US cues. Empirical evidence from the past shows the Indian central bank has typically followed the rate cues from the Fed.

Also, there’s a growing chorus for rate cuts at home.

Walking a thin line

Yet, when it comes to a rate rethinking, the MPC is caught in its own trap. The panel has publicly, and repeatedly, said that reaching the 4 per cent medium term target is sacrosanct, before a pivot.

That means, if the US Fed cuts rates and if the MPC moves on rates before the 4 percent target is achieved in a sustainable manner, the panel will be embarrassing itself.

On the other hand, if the MPC remains adamant on rate status quo for too long, it will be blamed for stifling growth and being over-obsessive on inflation.

Already, there are dissensions within.

Although India is set to grow as the fastest growing major economy in the world in FY25, there are pockets of worries in Asia’s third-largest economy; the issue of employment tops the list.

A study by the economics research department of Bank of Baroda shows the employment scene in the corporate sector is not too encouraging. The employment growth, for a sample of 1,196 companies, was just 1.5 percent in FY24 compared with 5.7 percent in FY23.

That’s not an isolated view. A CMIE report too had showed in June, the unemployment rate rose to 9.2 percent in June 2024, up from 7 percent in the previous month. That aside, there are some early signs of caution in unsecured retail loans, prompting the regulator to act.

About loans and stock valuations

In today’s MC Pro edition, Aparna Iyer writes why RBI should be more worried about Loan Against Property where end use of money is often unclear and Manas Chakravarty probes whether there is indeed a structural shift in bank deposit growth.

Also, don’t miss this insightful interview of Sanjeev Prasad, MD and Co-Head, Kotak Institutional Equities by my colleague Vatsala Kamat.

Prasad cautions investors saying valuations of many stocks even outside the top 50 companies are much higher. Most stocks are trading at significantly higher valuations than their pre-pandemic levels, Prasad says.

Also, the MPC minutes are set to be released today evening; we’ll keep you updated.

That just about wraps it up for today.

Investing insights from our research team

Zomato widens its platform basket with foray into event-ticketing business

IRCON International: Moderate earnings growth seen for next two years 

Cyient DLM: Should investors worry about the stake sale by parent Cyient?

Defence Shipbuilders: Strong visibility, execution to support higher valuation

What else are we reading?

Will the government U-turn on lateral entry ensure social justice?

Chart of the Day | What does the core inflation pattern tell us?

Not only senior citizens, but all bank depositors have the right to full insurance cover

Start-up Street | WazirX hack: socialising losses and short-changing of customers

Gold hits record highs as investors bet on rate cuts (republished from the FT)

The global power of Big Agriculture’s lobbying (republished from the FT)

Kolkata Rape and Murder Case: A wake-up call for women's safety and workforce participation in India

Why 818,000 fewer jobs signal a healing economy. Don’t panic

Tech and Startups

BookMyShow vs Paytm and Zomato: The going-out business is set for an intense battle

Technical Picks: Biocon, Hindustan Petroleum, Alok Industries and Bank Nifty (These are published every trading day before markets open and can be read on the app).

Dinesh Unnikrishnan
Moneycontrol Pro