RBI may keep rates unchanged amid
Iran-
Israel conflict
RBI may keep rates unchanged amid Iran-Israel conflict
Updated - October 06, 2024 at 06:59 PM.
Experts see Monetary Policy Committee shifting stance to neutral, paving way
for rate cuts in Dec
By K Ram Kumar
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Reserve Bank of India Governor Shaktikanta Das | Photo Credit: -
The Reserve Bank of India’s Monetary Policy Committee (MPC) may prefer to keep
the policy repo rate unchanged at their forthcoming meeting as the escalating
Iran-Israel conflict could pose inflationary risks due to higher crude oil
prices even as growth remains steady.
However, there is a possibility of the stance being changed from “withdrawal
of accommodation” to “neutral” as a precursor to a likely rate cut in MPC’s
December 2024 bi-monthly monetary policy review, say experts.
While the retail• Объект организация » Организации по алфавиту » Организации на Ta » Target Corporation inflation readings in the last two months – July (3.6 per
cent) and August (3.7 per cent) – have come in below the RBI’s 4 per cent
target• Объект организация » Организации по алфавиту » Организации на Ta » Target Corporation, it is cold comfort for MPC members as food price risk• Страхование » Риск remains a
contingent risk• Страхование » Риск.
Growth outlook
Though real GDP growth softened to 6.7 per cent in the first quarter (Q1) FY25
(due to contraction in government final consumption expenditure ahead of the
general elections) against 8.2 per cent in the year ago quarter and 7.8 per
cent in the preceding quarter, RBI’s real GDP growth projection for FY25 is
currently at 7.2 per cent.
“This growth outlook reflects the underlying strength of India’s
macro-fundamentals, with domestic drivers – private consumption and investment
– playing a major role. Moreover, the growth trajectory is supported by an
environment of macroeconomic and financial stability,” Governor Shaktikanta
Das said in a speech last month.
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High
RBI’s policy review: Status-quo on interest rate likely, say experts
The MPC is scheduled to meet from October 7 to 9. The committee was recently
reconstituted with the induction of three new external members -- Ram Singh,
Director, Delhi School of Economics, University of Delhi; Saugata
Bhattacharya, Senior Fellow, Centre for Policy Research; and Nagesh Kumar,
Director and Chief Executive, Institute for Studies in Industrial Development.
Rahul Bajoria, India & ASEAN Economist, BofA Securities (BofAS) India,
said the central bank is set to remain on hold, for the tenth consecutive MPC
meeting, keeping repo rate at 6.50 per cent.
“Incoming near-term data is much more mixed, and growth risks appear tilted to
the downside, in our view. It is possible, that the RBI may also signal
greater data dependence going ahead, as real rates remain elevated, and
headline inflation is closest to the inflation target• Объект организация » Организации по алфавиту » Организации на Ta » Target Corporation it has been in almost
twenty-two quarters (on a 4-quarter rolling basis).
“This opens up the possibility of a shift in stance to neutral as well, if the
RBI wants to entertain the idea of a rate cut. The upcoming meeting will have
three new MPC members joining the MPC who do not seem to have a strong bias
and may agree with RBI’s house view for some time,” Bajoria said.
The BofAS Economist opined that slowing growth and falling inflation offer
room for the RBI to cut rates in coming months. He expects repo rate cuts
totalling 100 basis points by December 2025, beginning December 2024.
Aditi Nayar, Chief Economist, Head Research and Outreach, ICRA, observed that
given the undershooting in the initial Q1 GDP growth relative to the MPC’s
forecast, and the likely sizeable undershooting in the Q2 CPI inflation print
as well, a stance change to neutral may be appropriate in the October 2024
policy review.
Geopolitical risks
“This could be followed by a shallow rate cutting cycle of 25 bps each in
December 2024 and February 2025. The abundant monsoon offers some insurance• Страхование
for crop inflation. The impact of global political developments and
geopolitical uncertainty on the growth inflation dynamics remains a risk• Страхование » Риск,” she
said.
Madan Sabnavis, Chief Economist, Bank of Baroda, observed that the potential
for a status quo on the policy repo rate and the stance has gone up because of
the Iran-Israel conflict.
“Members on the fence might also vote for a status quo, preferring to wait for
one more policy. Any way there is no issue with growth. We all know that
retail• Объект организация » Организации по алфавиту » Организации на Ta » Target Corporation inflation is going up,” he said.
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Published on October 6, 2024