Why The Markets are Wary of a RBI Rate Cut
India's major indices were down on Thursday, after being pulled down by auto and consumer stocks
On Episode 501 of The Core Report, financial journalist Govindraj Ethiraj talks to DK Joshi, Chief Economist at CRISIL. We also feature an excerpt from our interview, part of our Energy Special series with IEW, where financial journalist Govindraj Ethiraj talks to Arvinder Singh Sahney, Chairman of Indian Oil Corporation Ltd. (IndianOil).
(00:00) Stories of the Day
(01:09) Why the markets are wary of a RBI rate cut
(03:19) What is the RBI faced with in its calculations on a possible interest rate cut
(09:48) The Rupee hits another record low
(10:56) Rural demand stays strong, lifts consumer goods sales 11% in last quarter
(12:31) What Indian Oil wants from young entrepreneurs and engineers wanting to join the energy giant
(20:50) January was the warmest on record
(21:30) America’s egg crisis, one reason is Ozempic
NOTE: This transcript contains the host's monologue and includes interview transcripts by a machine. Human eyes have gone through the script but there might still be errors in some of the text, so please refer to the audio in case you need to clarify any part. If you want to get in touch regarding any feedback, you can drop us a message on [email protected].
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Good morning, it's Friday, the 7th of February and this is Govindraj Ethiraj, headquartered and broadcasting and streaming like always from Mumbai, India’s financial capital.
The top stories
Why the markets are wary of a RBI rate cut.
The Rupee hits another record low.
What is the RBI faced with in its calculations on a possible interest rate cut.
Rural demand stays strong, lifts consumer goods sales 11% in last quarter.
What Indian Oil wants from young entrepreneurs and engineers wanting to join the energy giant.
America’s egg crisis, one reason is Ozempic.
January was the warmest on record.
Markets
India's major indices were down on Thursday, after being pulled down by auto and consumer stocks as markets turned wary a day ahead of a Reserve Bank of India's (RBI) decision on interest rates.
The expectations are of an interest rate cut and more on that shortly.
The markets started off in the positive on the back of losses on Wednesday but then lost ground into the day.
The RBI’s rate cut if it happens will be the first in almost five years.
The BSE Sensex and NSE Nifty50 ended Thursday's session in negative territory.
The Sensex fell 213.12 points to close at 78,058 while the NSE Nifty50 was down 92.95 points at 23,603.
Unlike Wednesday, the broader markets moved with the benchmarks with the Nifty Midcap100, and Nifty Smallcap100 ending down by 1.26 per cent and 0.30 per cent.
Foreign portfolio investors (FPI) have offloaded Indian shares worth $9.23 billion in 2025 so far, Reuters reported.
On Wall Street, U.S. stock futures climbed Thursday after the major averages posted back-to-back winning sessions, as investors weighed the latest batch of corporate earnings, CNBC reported.
Futures tied to the Dow Jones Industrial Average, along with S&P 500 futures, hovered around the flatline. Nasdaq 100 futures fell 0.2%.
Semiconductor stocks were down as was Ford Motor and Honeywell on weak or projected weak earnings
The moves followed a second day of gains for the major stock averages. The Dow added 317.24 points, or 0.71%, during the day’s regular session. The S&P 500 and Nasdaq Composite gained 0.39% and 0.19%, respectively, aided by a jump in Nvidia shares.
The fear of tariffs and its impact appear to have receded a little, particularly after the US paused on imports from Mexico and Canada.
Meanwhile, State Bank of India, India’s largest lender, reported a better-than-expected quarterly profit thanks to strong loan growth.
SBI reported profits of Rs 16,891 crore rupees ($1.93 billion) in the third quarter, compared with Rs 9,164 crore rupees a year ago.
The expectation was a profit of Rs 16,472 crore rupees, according to data compiled by Reuter’s LSEG.
What does the RBI have in store?
If a rate cut happens as generally expected, then it would be the first in five years.
On the other hand, there is now a fear that a rate cut could potentially hurt the rupee, already hitting record lows and trigger more outflows and putting more pressure on markets.
It's an unforgiving cycle of sorts.
So what are the options before the RBI and what could be the way ahead.
I reached out to Crisil Chief Economist DK Joshi and began by asking him to lay out what the RBI could be balancing or factors influencing its thinking and approach right now.
INTERVIEW TRANSCRIPT
DK Joshi: The most important thing for RBI on a rate decision is the growth inflation dynamics. So, domestic factors always have a higher weight than the other factors. And here, I think I would say that the inflation is trending down, though it is not at the level where they want it to be, which is 4%.
But it is gradually, indications are that it's moving towards that. And reason for that is food inflation is coming down, and the agriculture is expected to be better, I think, and the rupee harvest is expected to be good. So, that will also help.
So, the indications are that food inflation will head down. And from the non-food inflation side, there's not too much of risk because oil prices have already softened and commodity prices also are likely to remain soft in the current milieu. The fiscal policy which was announced in the budget is not inflationary because the overall fiscal impulse is lower than what it was last year.
So, from an inflation perspective, there is continued improvement. On the growth side, I think growth has come in at slower than expected. So, and even the budget factors in 10% GDP growth for 2025-2026, which is lower than what they'd assumed in the previous year.
So, there is some downside to risk, and the inflation is softening. So, that is one part of the story. So, from that angle, I think the rate cut is needed.
But if you look at other factors, which are global in nature largely, you have global uncertainty because of the tariff wars, etc., back and forth on them. The liquidity conditions have tightened, and this is largely due to capital outflow, rupee intervention by the central bank to curb volatility in the currency, and that has created tighter liquidity conditions. And then to respond to that, the central bank eased the liquidity because if they don't ease the liquidity, then rate cut doesn't have an impact.
And even in the previous policy, the CRR was cut, which is a more blunt instrument to put liquidity in the system. So, that is one side, the liquidity story. Then I think the other is globally, I think the central banks have become a little cautious on their rate cut, particularly I'm talking of the US Fed.
And the Fed has paused in January, and the rate cut expectations are now that they will not cut as fast as they were planning to cut earlier. But nevertheless, I think they have begun the cycle last year. So, the overall story from the global side is that different countries are acting differently according to their domestic requirements.
Recently, the Bank of Indonesia cut interest rates despite the fact that they have a huge amount of foreign loan debt, and also because I think the currency was very volatile, despite that they cut rates because there was risk to growth. So, I think most countries' domestic conditions always outweigh the external conditions. And I'm assuming the same thing for the central bank's perspective also.
I think they've already hinted at some easing by cutting CRR in the last policy. And I think the natural conclusion now is to move towards a rate cut, which we believe can happen in February itself.
Govindraj Ethiraj: Just to come back to currency, what is the role that currency is playing in this decision matrix?
DK Joshi: The risk from currency weakening is that your imported inputs that you import, they become more expensive, so it can transmit into domestic inflation. So, as I said, there are two things happening. The oil prices are soft, commodity prices are relatively soft.
And so, even if currency is making your imports expensive, I think the price of imports in itself is coming down. I think in many cases, particularly where it matters more like oil. And oil may remain very volatile, hard to predict what's going to happen.
But it looks like, I think, our assessment is that oil will remain soft. So, there is some offset that comes from lower imported goods prices to the weakening of the currency.
Govindraj Ethiraj: Looking ahead now, what would, if there is an interest rate cut as expected, what could that rate cut be? Or what is ideal to have any meaningful impact? And what would that impact potentially lead to?
DK Joshi: Sure. I think the central banks typically don't go in for an aggressive rate cut unless there is some huge risk emerging in the system. So, at this juncture, I would expect the usual playbook of the central bank, which is to cut rates in baby steps, which is 25 basis point.
So, I would expect 25 basis point rate cut from RBI. Now, rate cuts do not impact the economy immediately. I think there's a lag of a couple of quarters before they start impacting the economy.
So, it will have a slow impact. But it will impact the urban areas more than it will impact the rural areas because urban areas have more credit penetration than rural areas. So, I think that's the way it is going to play out.
And one rate cut may be followed by another rate cut depending on how the situation arises. I think we've seen that U.S. earlier expectation was that they'll keep cutting rates, but they have paused because of the changing dynamics. So, here I would say that the current rate cut cycle is not going to be very deep.
I think maybe 75 to 100 basis point total. I mean, the rates were increased by about 250 basis point, but the rate cut cycle will be less or rather will be shallow this time.
Govindraj Ethiraj: Right. And we have a new governor now. And is there anything that you would like to see from him, not on monetary policy specifically, but from the overall Reserve Bank approach to financial markets that it's not necessary to do with him, but in general, is there anything else that you're looking out for?
DK Joshi: Not particularly. I think right now, main thing is the rate cut. I think we've analysed the need for rate cut at this juncture.
Govindraj Ethiraj: Thank you so much for joining me.
DK Joshi: Thank you, Govind. Always a pleasure.
Rupee Fresh Low
The rupee fell to another lifetime low on Thursday following several Asian and ahead of a potential interest rate cut on the horizon from the RBI.
The rupee has been the worst performing Asian currency in 2025.
It fell to a record low of 87.5825 during the session before closing at 87.5775, down 0.1% on the day and more than 2% so far this year.
A Reuters poll says short bets on the rupee have risen to their highest since mid-July 2022 even as the bearish outlook on other regional currencies has eased.
The dollar index was up 0.3% at 108 after hitting a one-week low on Wednesday.
There is a growing feeling in the forex markets that a global trade war may not happen at least at the intensity that was being felt a few weeks ago.
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Strong rural demand, as well as higher prices of staples like edible oil and wheat flour, helped the consumer goods sector report a 10.6% sales growth in the December quarter, Reuters quoted market researcher NielsenIQ saying on Thursday.
Rural India accounts for over a third of consumer goods sales - are propping up the consumer products industry fighting slowing spending in large cities.
"Rural markets (continued) to lead the charge, outpacing urban consumption (during the December quarter)," a NielsenIQ official said.
Sales volume jumped 9.9% in rural areas in the December quarter, up from 5.7% in the previous quarter - double the 5% increase in urban centers, NielsenIQ said.
But the added urban pockets also improved from the September quarter's 2.6% growth.
Rural areas have outperformed urban locations for the last four quarters, possibly thanks to giveaways in several states.
On the other hand, slowing salary increases in cities have squeezed consumer spending.
The Government’s new tax benefits will help increase consumption power but only in the next quarter.
Dabur India and Hindustan Unilever reported a higher December-quarter profit on recovering rural demand, though larger companies are also facing strong competition from smaller and regional companies who are growing faster.
Consumer goods companies have also raised prices to absorb commodity price increases.
Who does Indian Oil Want To Hire
Wherever you are in India, it’s quite likely you drive upto an Indian Oil Corporation pump to fill up the tank on your vehicle or use their cooking gas cylinders at home.
IndianOil, amongst India’s largest companies, has some 37,500+ fuel stations and delivers 2.6 million LPG cylinders every day.
And it also supplies fuel for 2,300 flights, more than half of the fleet in Indian skies.
Much is changing in the way fuel is consumed including at the pump you might drive upto, including the technology that could make customer interactions more seamless.
I spoke with Arvinder Singh Sahney, an oil veteran who has worked with Indian Oil for every 30 years, taking over as Chairman last year and asked him what were the kind of technology challenges IOC was trying to solve for and who were the kind of people he needed for this and first, how was IOC’s outreach to the entrepreneurial ecosystem doing.
TRANSCRIPT
Govindraj Ethiraj: You talked about entrepreneurs so let me ask you about entrepreneurship or the whole younger startup ecosystem where do you see IOC connecting with this world and benefiting from it or partnering from it and your own thoughts.
A S Sahney: We have a very good programme and I think we have already done two rounds of funding with them although it was at the basic level it was at the very starting level. Now we are thinking that we should start funding at the higher level also which we have not done right now. So, at the lower level whoever we have partnered with they have started working with us and some of them with our support have developed also.
But when we look into an opportunity to enter at the second level or third level there in it we have a very good like our financial prudence and the technology that they are bringing in a proven technology that they are bringing then maybe we can develop them into bigger unicorns or something but that we have not done as of now that is a job in progress and we can promise you that next time when we meet we will have a better picture to tell you or become a bigger story to tell you.
Govindraj Ethiraj: I am tempted to ask if you were a young engineer today what is the kind of project that you would work on but let me flip it differently what are the kind of problems that you are hoping that some of these younger startups or engineers solve for you.
A S Sahney: There are n number of things that is one that we already talked about the use cases how we can talk to or how we can engage with the younger customer at the forecourt, how I can better my asset management at the refineries and at the pipelines and at the detail outlets, how we can monitor them well, how I can reduce the downtime of my assets, how I can increase the frequency or I can say increase the gap between two turnarounds or two shutdowns between in a refinery or something so that I can start sweating more and more of my assets into it or my more utilisation of assets happens, how I can improve a quality checks of my products that are impeccable today but the amount of effort that goes into maintaining the quality that can be reduced if I use AI or if I use digitalisation, if I use more and more technology into it how I can do that. How I can detect any sign any red flag that happens in my system on the safety front or on the operation front or on the asset availability front or asset reliability front those will be the areas wherein I would I do not want to disturb my operations but still I want to get the data so that I can identify and detect my red flags from my system. So, that is where I need entrepreneurs to work that is where then these are hardcore engineering areas wherein people are interested to do engineers with digital background with some sort of advanced knowledge of computers and advanced knowledge of systems, they can work with us and we can be very happy, we will be very happy to associate with them in doing this.
Govindraj Ethiraj: And you are also I mean just to go back to the pump, one of the things that struck me is that your future pump will also maybe half liquid fuel and half battery dispensing, is not it? Because you have already partnered with people for that.
A S Sahney: Yeah, going forward we have to understand that energy requirement in India is going to double in another 15 years. Today we are at around 900 million tonnes of oil equivalent or so, by 2040 I will be 1900 million tonnes of oil equivalent with the kind of growths that India is seeing, so two times. But the petrol and diesel and these kinds of conventional fossil fuel they are not going to double in India, they will be going up to certain area and then they will plateau and maybe going forward they will start to come down also.
But the percentage of energy that is going into transportation that will continue or that will even grow further also, number of cars will grow, number of trucks will grow, everything will grow. The energy requirement for transportation is continuing to grow. Even in my case, today I am supplying 9% of the total energy that India uses, I am not going to leave it, I am going to maintain that 9% and I have an ambition of increasing it to 12.5%. So, 9% in 900, now I want to 9% of 1900 and 12.5% of 1900, so that is the ambition. So, I am not going to leave this space but not by the fossil fuel of the kind that we are using today, liquid fuel. So, as I told gas will be a big push that I will give, battery will be a big push that I want to give, normal chargings will be there, then CBG will be there, ethanol will be there, green hydrogen is going to be there. So, these all will be there and India is so growth hungry that energy is not going to be the deciding factor that this energy or that energy, whichever energy comes and it is competitive, it will be welcomed by the Indian customers.
And we will be there to provide them with all those kinds of energy which will be there because we are energy of India and we want to maintain ourselves as energy of India. We are not oil of India or we are not petrol or diesel of India, we are energy of India and we have all the intentions of keeping that energy in bold.
Govindraj Ethiraj: What is a personal challenge for you in the context of energy and this could be something far out. You say, okay, I want to invent this new kind of engine or new kind of fuel, something that you would have thought of doing if you were a young engineer today.
A S Sahney: I would like to take it to a different level. I do not want to go to the young engineer level, I want to bring it to the managerial level or today's level. Challenge is there, but as I said that when we are talking of different forms of energy, when we are talking of different aspects of energy, different perspectives of energy and I want to be there in each of them.
So, I need the kind of talent, the kind of people, the kind of skill sets that are required for each one of them. I do not have today. Industry does not have today.
Industry does not produce CBG kind of engineers, they do not produce renewable kind of engineers, so many. They do not have those kind of people, those kind of engineers who are conversant with CBG, ethanol, battery, bio or working with minerals. We have very small number of people who know about mines and minerals.
Today, mines is going to be and minerals are going to be the very big component of all the batteries that will be going to be there. So, we need those kind of talents and in our company, we were primarily looking after oil and gas and liquid product. So, we do not have that kind of talent and that is going to be the biggest challenge going forward.
I need those kind of people, I want to retrain my people, I want to reskill my people and I have to bring in people from the market who are having those kind of skill sets into the fold, allow them to grow with us, teach us how to work on these new platforms and then grow with us. That is going to be the biggest challenge. The people are going to be the biggest asset and they are going to be the biggest challenge in this journey.
Whoever solves these puzzles sooner, he will be the first mover.
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Warmest January
Last month was the world's warmest January on record, continuing a streak of extreme global temperatures despite a shift towards the cooling La Nina weather pattern, European Union scientists said on Thursday.
January extended a run of extraordinary heat, in which 18 of the last 19 months saw an average global temperature of more than 1.5 degrees Celsius above pre-industrial times, the EU's Copernicus Climate Change Service (C3S) said in a monthly bulletin.
That was despite the world shifting from the El Nino warming pattern - which helped make 2024 the world's warmest year on record - and turning towards its cooler counterpart, which involves the cooling of equatorial Pacific waters, and can curb global temperatures.
"The fact that we're still seeing record temperatures outside of the influence of El Nino is a little surprising," said Samantha Burgess, Strategic Lead at the European Centre for Medium-Range Weather Forecasts, which runs the C3S service.
Egg Crisis
America is facing a national egg shortage sending prices to $7 a carton.
Egg prices have broken record after record as bird flu spreads across the country, killing millions of chickens.
Some 104 million egg-laying hens have been lost since the outbreak started in 2022, with 29 million killed since October, according to farmer group United Egg Producers. That’s resulted in shortages at grocery stores at a time when shoppers just keep on buying more, Bloomberg reported.
Interestingly, demand is also higher than normal because drugs such as Ozempic, designed to treat diabetes but widely used for weight loss, are boosting demand for eggs as a source of protein.
In New York City, prices reached as high as $11.99 for a dozen cage-free eggs at Whole Foods Inc.
The national retailer placed a three-carton purchase limit on customers at some locations in the city.
