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Below the Quote On Quote On RBI Monetary Policy by Mr. Ajit Banerjee President & Chief Investment Officer, Shriram Life Insurance Company Ltd

"The outcome of the next MPC meeting, scheduled between December (4 and 6), is being eagerly awaited to watch which way the MPC is going to take a decision on policy rates against the backdrop of CPI inflation rising beyond MPC’s target inflation band (of 2-6 %) and key heat map indicators signalling economic growth slowing down. RBI’s view on inflation control has been focussed upon taming the inflation in a more durable pattern so that economic growth can be more sustainable and broad-based after the rate cutting cycle starts and inflation is brought under control. The Q2 GDP growth numbers, going to be announced on 29th November, are likely to be less than the Q1 GDP growth numbers of 6.7%.

 The deceleration in GDP growth has been primarily driven by slow pace of Central Government and State Government capex in Q1 and Q2 of FY25, which was propelling the GDP growth in the last two financial years. To add to this, we have also seen excessive heat, erratic monsoon and an extended shradh period also playing a spoiltsport. Further, urban consumption levels for essential items started coming down more acutely in H1 of FY25 and rural consumption levels have just started showing green shoots which would help in augmenting the GDP growth to a certain extent in H2 of FY25. The Central government has also started disbursing funds to states for capex and other welfare schemes, which, in turn, should lead to an increase in consumption at the ground level. Therefore, H2 of FY25 would show a slight uptick in GDP growth as compared to H1.

 Hence, keeping all of the above in mind, the case in point here is, would RBI start its rate cutting cycle in this MPC? Our in-house view is RBI would main status quo on the policy rates in the coming MPC meeting but would give clear indication in the governor’s post-policy statement on the path the MPC would like to take on the policy rates going forward. We are also seeing huge stress on the MFI segment and the financially less endowed urban population, who are highly leveraged now. At this stage, if the rate cutting is done and guards are held loose, a larger asset bubble can get created. Apart from that, the RBI would also like to see trade and monetary policy with the new government in the US, what would they adopt, and what can be the potential ramifications for India and decide its course of action if felt necessary."

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