RBI Should Not Cut Interest Rates This Week, Says Axis Bank's Neelkanth Mishra

The Reserve Bank of India should not cut interest rates in this week's monetary policy committee meeting as inflation remains sticky, according to Neelkanth Mishra, chief economist at Axis Bank Ltd.

"There is consensus now that the RBI will be cutting rates and from a prescriptive angle, I don't think they should be cutting rates because of the stickiness of inflation," Mishra told NDTV Profit, highlighting concern over the December CPI print.

"Inflation is starting to percolate and business expectations on inflation have increased by 61 basis points in the last survey," he said. "Maybe they can do it (rate cutes) in April or June."

The central bank should do much more in terms of durable liquidity improvement, according to the economist. The tightening so far has been much more meaningful on the quantitative side.

"If your base money growth is below 5% in an economy growing in double digits, it's a huge driver of a slowdown. Credit growth falling from 17% year-on-year to less than 11% is a very major driver of the growth slowdown," Mishra said.

He suggested the RBI could ease credit norms on areas like house mortgages to trigger retail loan creation.

The MPC will meet between Feb. 5 and 7, and the policy decision will be announced on Friday — the first under Governor Sanjay Malhotra.

Neelkanth Mishra said the importance of the budget for the economy and the markets has been shrinking over the last three decades and it continues.

"The government is running out of areas to spend on defence and infrastructure. We are reaching a level where the pace of construction is now sufficient for Railways. The limitations on the government's fiscal paths were becoming clear," he said.

Mishra said the fiscal 2026 primary deficit, which is fiscal deficit minus interest cost, is now close to normal and there is a substantial jump in the personal income tax-to-GDP ratio.

"The payout is coming from higher compliance and personal income taxes, so tax cuts does boost discretionary demand in certain sectors from these 70-75 lakh people who are going to be benefiting from it. But aggregate consumption is not getting boosted," he said.