India Needs Rate Cuts Up To 200 Basis Points To Ease Financial Pressure, Says Saurabh Mukherjea

The Reserve Bank of India's Monetary Policy Committee should cut benchmark lending rates up to 200 basis points over the next two to three years to ease financial pressure on households and support economic growth.That's the word coming in from Saurabh Mukherjea, founder and chief investment officer at Marcellus Investment Managers, who believes that a reduction in interest rates would help improve consumer spending and investment, and that high household debt levels and slowing job creation have put pressure on the economy."We need a 200 bps rate cut over the next couple of years to ease the pain on the middle class. Unfortunately, what Trump is doing is jacking up the dollar, which makes it very difficult for the RBI to cut rates aggressively," Mukherjea told NDTV Profit in an interaction.Mukherjea highlighted that the strengthening US dollar is making it difficult for the RBI to implement aggressive rate cuts. The global currency trends and US policies are key factors influencing India’s monetary policy decisions.He pointed out that Trump 2.0’s economic policies could further strengthen the dollar. If the US imposes trade tariffs and other protectionist measures, the dollar could rise further, making it riskier for India to reduce interest rates quickly, he added.If the RBI cuts rates aggressively, the rupee could depreciate further, affecting India's macroeconomic stability, Mukherjea said, adding that the central bank would need to balance rate cuts carefully while ensuring that the currency remains stable against global fluctuations..Mukherjea flagged that the middle-class consumption is slowing down, despite government support measures such as direct benefit transfers, free grain distribution, and health insurance under Ayushman Bharat.He attributed this slowdown to rising debt burdens and job market challenges. With net household savings at their lowest levels since 1977, the middle class has less disposable income to spend, affecting demand for goods and services.Job creation has slowed, particularly for the middle class, due to automation, AI, and mechanisation. Mukherjea highlighted that every year, one crore graduates enter the workforce, and two crore people, overall, seek jobs. However, existing employment opportunities have not kept pace with these numbers, making it difficult for middle-class households to sustain spending, he said.This situation has led to a shift in government spending priorities, with a stronger focus on welfare schemes for low-income groups rather than direct support for middle-class consumption. Mukherjea noted that political realities are shaping economic policies to ensure stability..Budget 2025: Saurabh Mukherjea Bets On HDFC Bank Among Quality Bank Stocks And Export-Oriented Sectors.Mukherjea also warned that non-performing assets are increasing in multiple lending categories, signalling financial stress in the system.Microfinance sector's NPAs have crossed 10%, indicating stress in rural and small business lending, he said, adding that the rising defaults in this sector suggest challenges in repayment capacity for lower-income borrowers.NPAs in the unsecured loan segments and credit card defaults have risen to 5-7%, reflecting financial strain in urban areas, and high debt burdens and increased borrowing costs have made it harder for borrowers to meet repayment obligations, Mukherjea noted.Additionally, he flagged that NPAs in the the two-wheeler financing segment are also increasing, suggesting that consumer affordability is weakening. These trends indicate that financial stress spreading across different segments of the lending market, the analyst said..Budget 2025: Use Budget To Understand Economy And Build Long-Term Portfolio, Says Saurabh Mukherjea

India Needs Rate Cuts Up To 200 Basis Points To Ease Financial Pressure, Says Saurabh Mukherjea

The strengthening of the US dollar can make it difficult for the RBI to cut rates aggressively, Saurabh Mukherjea said.

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