The credit policy has quite expectedly maintained status quo on both repo rate and stance
Madan Sabnavis, Chief Economist, Bank of Baroda
Achala Jethmalani, Economist, RBL Bank
FinTech BizNews Service
Mumbai, June 7, 2024: Shaktikanta Das, Governor, the Reserve Bank of India, gave a statement today following MPC meeting. Decisions and Deliberations of the Monetary Policy Committee (MPC) have bearing upon various aspects of lending, investment, saving, digital & IT, Banking liquidity, FPIs inflows etc. Let’s know what are the views of the leading economists:
October can be the time when a rate cut can be considered
Madan Sabnavis, Chief Economist, Bank of Baroda: The credit policy has quite expectedly maintained status quo on both repo rate and stance. There has been a slight revision in GDP growth forecast to 7.2% which is still lower than our forecast of 7.3-7.4% for FY25. The RBI is sanguine on the growth trajectory and while inflation is to average 4.5% for the year, there is concern on food inflation especially in the wake of the heatwave which has increased prices of horticulture products. But with growth being secure, it gives the RBI room to not commence on rate cuts at this point of time. In fact, quite appropriately the RBI has pointed out that while inflation will go below 4% mark in Q2, it would be rising again in Q3 and Q4. Therefore, it looks like that there will be a continuous monitoring of the monsoon and food inflation from now on to gauge the durability of lower inflation before taking a call. Our view is that October can be the time when a rate cut can be considered but will be fully data driven. A clarification made by the Governor on decisions being based on local conditions is significant because often markets tend to react to Fed statements as they are interpreted as having impact on the RBI decision on repo rate.
“We see a shallow rate cut this fiscal, probably starting in December 2024”
Indranil Pan, Chief Economist at YES BANK: Even as one more member has now turned in favour of a stance change and a rate change, we do not see the RBI in any hurry to move towards a pivot. The governor points out to the fact that there continues to be risks from food inflation and the summer price changes are visible on the backdrop of a shallow winter price drop. In this context, the RBI would watch out for the pulses and vegetables prices that have seen a recent uptick in prices. There are some cautionary statements for the core inflation too. It was pointed out that the early results from its enterprise surveys do point towards firms expecting the selling prices to stay firm. Importantly, for the RBI, the 4% inflation target to be reached on a durable basis remains sacrosanct. The comment that comes to the fore is his mention of the fact that the currently expected 3.8% average inflation for Q2 FY25 is likely to be a one-off and inflation is expected to move higher beyond this point. Overall, this policy continues to echo similar sentiments as in the previous policy – that the RBI is unlikely to make any haste in its decision to pivot and will remain driven by the domestic growth-inflation mix in determining the timing of its policy move. In our opinion, with growth expected to remain firm, the last phase of dis-inflation towards the 4% target remains arduous and hence the RBI would be willing to bide its time. We see a shallow rate cut this fiscal, probably starting in December 2024.
“We see a cautious pause be the case till September 2024”
Ms. Achala Jethmalani, Economist, RBL Bank: A status-quo policy on all fronts. With growth-inflation projections for the fiscal year unchanged, with minor quarterly revisions, is a good signal as it indicates that the economic situation is panning out as envisaged. The MPC remains cognizant of food related upside risks to inflation trajectory. We see a cautious pause be the case till September 2024.
Growth gives the elbow room for pause
Ms. Anitha Rangan, Economist, Equirus: Status Quo for Seventh Time in a Row –RBI in its 2nd monetary policy for FY25, maintained policy rate at 6.5% as expected and maintaining withdrawal of accommodation. The key takeaway is a) shift in voting pattern from 5-1 to 4-2 (Dr. Ashima Goyal and Prof. Jayant Varma) are likely the dissenters b) Upwards revision in growth for FY25 to 7.2% from 7.0% while keeping inflation unchanged at 4.5% for the year. Overall, the key reason for maintaining policy rate is the uncertainty on the outlook of domestic inflation led by the food side. According to RBI while core inflation is encouraging and at the lowest level in the current series, it is the food inflation that is playing spoilt sport, requiring vigilance. In addition, crude outlook remains uncertain. A reference was also made that external factors are watched for, to see the impact on domestic inflation. Overall, Indian economy is at an inflextion point with inflation on right track but work to be done. The watch is from global side with global last mile inflation remaining arduous and geo-political risks. For Rbi as we have reiterated earlier growth remaining firm, monetary policy has elbow room to focus on price stability. The growth revision only reiterates that RBI is willing to wait and watch – RBI can watch for longer. RBI has the trinity of patience, perseverance and poise to support the economy!.”
