No rate cut, but dovish undertone likely

The stance can be changed, and if that doesn't happen, hawkish underdone will not continue

- TAMAL BANDYOPADHYAY

On August 1, in a closely-run decision, the Bank of England lowered its main interest rate by a quarter percentage point to 5 per cent, marking the first rate cut since the Covid pandemic outbreak in March 2020.

In a five-to-four verdict, BoE Governor Andrew Bailey joined four other policymakers in bringing the rate down from a 16-year high.

The decision to cut interest rates is "an important moment in time", Bailey said, but warned people not to expect a sharp fall in the policy rate in the coming months.

The day before, the US Federal Reserve's rate-setting body, the Federal Open Market Committee (FOMC), unanimously voted to keep the policy rate unchanged at 5.25 per cent. The decision to maintain the rate at its 23-year high was on expected lines, but there have been hints of a possible rate cut in September. The forward guidance remains unchanged. However, the policy statement, which had so far emphasised containing inflation, for the first time, spoke about its "dual mandate"-containing inflation and generating employment.

A dovish press conference followed the FOMC meeting. Fed Chairman Jerome Powell was emphatic that the prospects of a rate cut in September remain firmly in place. The case for cutting rates could open up "if inflation moves down in line with expectations, growth remains reasonably strong, and the labour market remains consistent with its current conditions".

While the world's largest economy braces for a rate cut two months ahead of its 60th quadrennial presidential election, what will the Reserve Bank of India (RBI) do next week at the meeting of its Monetary Policy Committee, a fortnight after the Union Budget? The last policy meeting took place in June, immediately after the general elections.