There are varying views on monetary policy among stakeholders. One compelling argument for cutting rates further into a single digit is to facilitate a growth revival while keeping real rates around 2 percent on a forward-looking basis. The IMF and government project inflation to reach 7.5 percent in FY26, while analysts’ forecasts are even lower. Thus, lowering rates by another 2 percentage points this year cannot be ruled out.

The objective is to revive economic growth and generate employment. The core question is whether private credit will rebound enough to create growth momentum. The chances are not high. Although interest rates have already halved from their peak, there are few signs of direct growth through private credit, either producer or consumer. More important bottlenecks, such as higher taxation and energy prices, continue to suppress demand. Additionally, the removal of wheat support prices keeps rural demand in check.

However, there are risks to cutting rates too quickly. There is an intrinsic link between interest rates and exchange rates: keeping rates high reduces pressure on currency depreciation, and vice versa.........

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