EcoFlash - Resilient Macro Fundamentals, RBI likely to stay Data-Dependent by Prabhudas Liladhar Capital Ltd
In line with our expectations, MPC committee unanimously voted to keep the repo rate unchanged at 5.25% with neutral stance. Despite global uncertainty, India’s macro fundamentals reflect resilience except concerning pressures on external sector led by West Asian Crisis. Going forward, we expect MPC to remain vigilant about future policy decisions keeping data and event dependent approach.
Data Highlights :-
* Real GDP growth projections increased by 10 bps to 6.7% for FY27 from previous policy announcement
* CPI inflation estimates lowered by 10 bps to 5% for FY27 than earlier projections,
* Current account balance recorded surplus of USD 2.8 billion during April-May in FY27, primarily driven by services trade and strong remittance receipts.
* In Q1FY27, merchandise trade deficit widened to USD 86 billion from USD 69 billion for corresponding period of last year
* Gross FDI inflows remained buoyant at USD 30.7 billion in Q1FY27.
Growth:-
Despite easing of supply-side pressures from the West Asian crisis in June, the subsequent escalation of the conflict led to volatility in energy prices and logistics costs. On the other hand, early Q1 corporate results indicate healthy performance in manufacturing sector, while services activity continued to maintain its momentum, supported by strong domestic demand. Private consumption remained driven by robust discretionary spending, and investment activity stayed steady, backed by strong government expenditure on infrastructure and construction. Merchandise exports rebounded with double-digit growth, while services exports continued to sustain their momentum.
Monsoon revival, improved kharif sowing, and healthy reservoir levels have so far helped contain any sharp rise in food inflation. However, the progress and spatial distribution of the monsoon will remain key factors to monitor.
Based on these developments, the RBI revised its real GDP growth projection for FY27 upward by 10 bps to 6.7% from the previous policy estimate. The quarterly growth projections are 7.0% for Q1, 6.4% for Q2, 6.5% for Q3, and 6.8% for Q4
Inflation:-
Considering the distribution of rainfall, renewed cost pressures arising from the West Asian crisis continue to keep inflation risks elevated. However, favourable progress of monsoon and healthy reservoir levels have limited risk of a sudden spike in inflation. Factoring in the current situation, the RBI lowered its FY27 inflation projection by 10 bps to 5.0%. The quarterly inflation projections are 3.9% for Q1, 4.7% for Q2, 5.9% for Q3, and 5.5% for Q4.
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