Quote on MPC expectations from Ajit Kabi, Research Analyst at LKP Securities
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Below the Quote on MPC expectations from Ajit Kabi, Research Analyst at LKP Securities
RBI Monetary Policy Expectations:
Economic growth for FY24 may be revised upward: As per the first advanced estimate of MOSPI, the economy is likely to grow at 7.3% driven by strong investment growth (projected to grow by 10.3%). Industrial growth to expand by 7.9% in FY24 against 4.4% in the previous year. GST collection, E-way bills, and PMI data shows sign of healthy growth.Nevertheless, the consumption demand is tepid with growth rate of 4.4% in FY24 against 7.5% in FY23. The significant slower growth of consumption demand, which contributes 50% of GDP, raises concern. Agriculture sector is also facing headwinds because of below average rainfall.
Overall the real GDP numbers to stay robust. Against the backdrop of improved economic outlook RBI is likely to increase the growth projection for FY24 to 7.3%.
Headline Inflation a concern; core inflation stable: Turning to inflation, the headline inflation at higher side of 5.7% in December; driven by higher food prices (especially, pulses, legumes and spices). However, core inflation is stable at below 4%.
Liquidity management: In the upcoming MPC meeting, the RBI is anticipated to sustain its emphasis on liquidity management, given tight money market conditions where call money rate hovering over repo rate. Furthermore, liquidity under banking system remain at deficit since the previous monetary meeting.
Our expectation: In conclusion, the economic outlook remains healthy. As core inflation and wholesale inflation are steady, the headline inflation is likely to settle down in coming periods with the arrival of Rabi harvests.
Policy rate expectations: Given the tightening liquidity condition, RBI is likely to support economic growth with cautious stance on inflation. Consequently, we expect the unchanged policy rate and possibility of shift in stance to NEUTRAL. Additionally, RBI may take steps to improve liquidity conditions. We expect policy rate cut by June-24.
Fiscal Balance: Narrowing the fiscal deficit target, the Govt indicated that the populist spending or incentives may be avoided in preparation for the forthcoming general election.
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