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Published: August 15, 2023
Updated: August 15, 2023
RBI Governor Shaktikanta Das can read the ‘signals’ from New Delhi better than previous governors. As elections, including the 2024 general election, are approaching, analysts expect the RBI to keep the policy repo rate unchanged in the August 10 policy meeting at 6.50%, continue with its hawkish guidance, and reiterate the 4% headline inflation target.
This is despite food inflation expected to go up to 7% in the coming weeks, with the risks tilted towards a further upside which is expected to remain above 6% yoy for the rest of the year, given the skewed monsoon distribution and supply disruptions.
On the other hand, core inflation pressure is easing modestly, mainly helped by lower core goods inflation. Survey data remains strong with the services PMI hitting a 13-year high in July. Indian equity markets have seen $16 billion in net FII inflows from May to July while the RBI has been leaning against inflows and accumulating reserves which has kept the overall level of spot reserves comfortable at above $600 billion. Analysts expect the RBI to look through the surge in food inflation, take comfort from declining core inflation, keep the policy repo rate unchanged in CY23, and continue with hawkish guidance, with Brent crude oil prices above $85/bbl.
The fiscal policy will have to do the heavy lifting to control food inflation as India heads into election season with multiple state elections in late 2023, culminating with the national elections by mid-2024. Food inflation has pulled down several governments in the past and Prime Minister Narendra Modi certainly does not want any problems on that front.
February 15, 2025 - First Issue
Industry Review
VOL XVI - 10
February 01-15, 2025
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