The third quarter GDP growth at 8.4% as compared to the consensus estimate of 6.6% forced economists to revise their estimates. Many of them now believe that the easing cycle may not begin before October.
“Given the bullish ‘Goldilocks’ economic assessment with FY25 growth estimate at 7% year-on-year, and inflation at an above-target 4.5%, we trim our rate cut call to 50 basis points in FY25, starting in October, against our previous expectation of 100 bps by April 2025,” DBS Bank senior economist Radhika Rao said.
She said that the road ahead might see a change in stance around the late second quarter of 2024, followed by easing in the second half, hinging on broader macro and global developments.
“Clearly, the higher-than-expected momentum in the economy may lead to a tight monetary policy from RBI for a longer period and any reversal in the current stance is unlikely over the next six months,” said Suman Chowdhury, chief economist at Acuité Ratings & Research.
The higher growth was largely driven by gross capital formation due to the government’s thrust on capacity expansion. The statistical office also revised the prints for the first and second quarters at 8.2% and 8.1%, up from 7.8% and 7.6% respectively.”RBI will go strictly by the inflation numbers,” said Bank of Baroda chief economist Madan Sabnavis. “The central bank has projected inflation to come to less than 5% only in Q2 and hence this will be the earliest point when one can expect a rate cut provided monsoon conditions look okay,” he said, adding that inflation would be guided more by monsoon shocks and higher food prices while the world economy appears to have adjusted to the Ukraine and Hamas crisis as also the Red Sea issue.In the February policy, RBI projected inflation measured by Consumer Price Index at 5.4% for FY24 with March quarter print at 5%. On the assumption of a normal monsoon next fiscal, RBI expects CPI to be at 5% in the first quarter, 4% in the second quarter, 4.6% in the third quarter and 4.7% in the fourth.
Strong growth coupled with projections of softening in inflation prints in the coming quarters offer a meaningful cushion for policy makers, said Bandhan Bank chief economist Siddhartha Sanyal.
“While we continue to believe that rate cuts are unlikely at least in the next couple of monetary policy committee meetings, a key aspect to watch is the RBI’s communication and action on the liquidity front,” he said.