The Monetary Policy Committee (MPC) led by the Reserve Bank of India (RBI) is likely to maintain status quo in the upcoming June monetary policy while remaining cautious on inflation, according to Moneycontrol’s poll of 20 economists and bankers.
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A majority of experts said that the central bank will maintain its ‘Withdrawal of Accommodation’ stance. However, two economists said it will be changed to neutral.
Radhika Rao, Executive Director and Senior Economist, DBS Group Research, said that that policy commentary is likely to acknowledge the recent stability in the headline inflation and the favourable monsoon forecast by the IMD.
“The approach will be balanced with a cautious tone on the fallout on food from extreme weather events, including the recent heatwave, and risks of higher oil on geopolitics,” Rao said.
“At the time of the June MPC, the latest CPI print will be May which is currently tracking at 4.9 percent. The overall tone will be cautious on food inflation risks as heat wave conditions could result in upward pressure on perishable items such as vegetables. More clarity on food inflation risk will be available once half the monsoon season is over or by the August / October RBI policy. That said, comfort on core inflation is likely to be sustained which is expected to remain around 3 percent as of May 2024,” said Gaura Sen Gupta, Chief Economist, IDFC First Bank.
In its April monetary policy, the central bank kept the repo rate unchanged at 6.50 percent for the sixth consecutive time. The RBI has kept the repo rate unchanged since the April 2023 monetary policy. This was after inflation showed signs of moderating.
Earlier, the MPC had steadily raised the repo rate by 250 basis points (bps) starting from May 2022. One basis point is one-hundredth of a percentage point.
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Inflation projection
Economists and bankers said that the central bank is likely to maintain its inflation forecast unchanged due to moderating headline inflation and the favourable monsoon forecast by the IMD.
Swati Arora, Economist, HDFC Bank, said the RBI is likely to retain its growth and inflation projections for FY25.
“Inflation has also eased marginally to 4.83 percent for the month of April. This positive momentum is expected to continue,” said Hardika Shah, Founder and Chief Executive Officer, Kinara Capital.
In its April MPC, RBI projected CPI inflation for year 2024–25 at 4.5 percent with Q1 at 4.9 percent, Q2 at 3.8 percent, Q3 at 4.6 percent and Q4 at 4.5 percent.
India’s headline retail inflation stayed largely unchanged at 4.83 percent in April, according to data released by the Ministry of Statistics and Programme Implementation on May 13.
The Consumer Price Index (CPI) inflation in March was at a 10-month low of 4.85 percent.
GDP numbers
A majority of the experts believe that the central bank will maintain its projection of India’s GDP. “GDP projections are expected to remain flat,” said Rajeev Pawar, Head Of Treasury – Ujjivan Small Finance Bank.
According to Achala Jethmalani, Economist, RBL Bank, FY24 GDP data have belied street expectations each time and the odds are high it could be the case this time around too. “However, basis statistical trends and lead indicators, we think the Q4FY24 GDP growth is likely to be more normalised at 6 percent YoY, after a record GDP print of around 8.4 percent YoY in Q3FY24,” said Jethmalani.
The Statistics Ministry now expects full-year GDP growth to be even higher than its unexpectedly high first advance estimate of 7.3 percent. The second advance estimates now peg GDP growth at 7.6 percent for 2023-24 even as economists had expected it to be lowered to 6.9 percent.
RBI retained the GDP growth projection at 7 per cent for 2024-25 fiscal on the back of expectations of a normal monsoon, moderating inflationary pressures, and sustained momentum in the manufacturing and services sectors. In its April monetary policy, the RBI said that the real GDP growth for 2024-25 is projected at 7 percent with Q1 at 7.1 percent; Q2 at 6.9 percent; Q3 at 7 percent; and Q4 at 7 percent.
India’s GDP in the fourth quarter of the financial year 2023-24 is anticipated to have grown between 6.1 percent and 6.7 percent, a decline from the over 8 percent growth rate observed in the previous three quarters, PTI reported, citing projections by various economists.
The government is set to release the GDP figures for the fourth quarter (January-March 2024) and the provisional estimates for the 2023-24 fiscal year on May 31.
India’s GDP grew 8.4 percent in the December quarter, the highest in six quarters. The last time India’s economy grew at a faster clip was in the first quarter of 2022-23, when it clocked a growth of 13.1 percent, which was later revised down to 12.8 percent.
Rate cut
The economists also suggested that the central bank will look at rate cuts post the October 2024 MPC policy.
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“The policy space to remain on pause is provided by strong domestic growth conditions with FY24 GDP likely to be closer to 8 percent. The RBI rate cut cycle is expected to start from October at the earliest,” Sengupta said.
Rao of DBS said, “With a limited near-term need to shift to a dovish gear, the RBI is likely to join its regional peers to stay on hold this year”.
