The global financial theatre is witnessing a pivotal shift. After a prolonged period of high interest rates aimed at taming inflation, central banks across the globe are beginning to ease their grip. The narrative is changing, with growth concerns gaining traction, prompting some bold moves from unexpected corners.

Powell’s Pivotal Rate Cut

The most significant signal came from the US Federal Reserve. In a move that surprised many, the Fed slashed interest rates by an aggressive 50 basis points. This decisive action from Jerome Powell has seemingly given a nudge to other central bankers who were perhaps hesitant to initiate rate cuts. Even the European Central Bank had preemptively trimmed rates, citing easing inflation and rising anxieties about economic expansion. While some, like the Bank of England and the Reserve Bank of Australia, remain in a wait-and-see posture, the global trend is undeniably towards lower rates. China’s PBOC has also joined the fray with substantial monetary easing measures.

RBI’s Inflation Focus

Back home, the question on everyone’s mind is: when will the Reserve Bank of India (RBI) follow suit? For the past 20 months, the RBI, under Governor Shaktikanta Das, has been steadfast in its battle against inflation. Rightly so, the central bank has prioritised price stability, learning from past experiences. The Monetary Policy Committee (MPC) has consistently maintained a hawkish stance, determined to anchor inflation around the 4 per cent mark sustainably before considering any change in policy.

Growth Now Beckons

However, the global economic interconnectedness cannot be ignored. With major central banks cutting rates to stimulate growth, the pressure on the RBI to reconsider its stance is mounting. The Indian economy, while showing growth, is arguably performing below its potential. Concerns around rising unemployment, stress on small businesses due to high interest costs, and asset quality issues are becoming more pronounced. Even RBI’s own research suggests that retail inflation is expected to fall to around 4 per cent by early 2025. As MPC member Jayanth Varma has pointed out, current growth projections are below India’s potential and insufficient to meet the aspirations of its young workforce. The RBI must now seriously consider shifting its focus towards growth.

Block Deal in Five Star Finance

In other market news, a significant block deal in Five Star Business Finance is grabbing attention. Holders are divesting a 19.22% stake, worth ₹4,317 crore. This secondary block sale, with a floor price of ₹768 per share, indicates significant market activity and portfolio rebalancing by major investors like Peak XV Partners and TPG Asia. Such deals, while common, often signal shifts in investor sentiment and future strategies within the financial sector.

What does this mean for the markets? A rate cut by RBI could be the booster shot the economy needs, but the central bank will want to be convinced about inflation being sustainably under control. Keep an eye on the upcoming MPC meetings; the global rate cut trend might just be the catalyst for a change in stance from Mint Street.

Image Courtesy: X (Investing.com)