After GDP surprise, here's what economists and analysts expect from RBI on Friday

RBI policy meet: In its upcoming monetary policy meeting scheduled to take place between December 6-December 8, the Reserve Bank of India is seen to hit the pause button on interest rates for the fifth time in a row amid easing inflationary pressure.

The pause button is anticipated at a time when the US Federal Reserve is also hinting at an early easing in the interest rate. Fed Chair Jerome Powell suggested a more balanced approach to tight monetary situation which raised bets that the central bank of the most developed economy is done raising rates and could soften key rates as early as March 2024.

Amid this background, here is a quick lowdown on how different analysts' see the RBI acting in its last monetary policy of the CY 2023:

Prasenjit Basu – Chief Economist, ICICI Securities is of the view that the RBI will be holding on to key policy rates given the easing inflationary pressure. “With CPI inflation moderating to 4.87% YoY in Oct’23 (and core CPI inflation to 4.5% YoY), we expect the RBI to keep the policy repo rate unchanged at its next MPC meeting. The prospect of further easing in inflationary pressure is likely to result in the MPC moving to a neutral policy stance (from the previous stance of “withdrawal of accommodation”), he said.

Sujan Hajra, Chief Economist & Executive Director, Anand Rathi Shares and Stock Brokers is of the view that the RBI will stick to the withdrawal of accommodation stance with the tone turning neutral going forward. "With an upside surprise in Q2 GDP numbers along with high-frequency indicators like IIP, Core and PMI indicating strong growth early in Q3 means the Indian economy has and continues to outperform broad expectations. On the inflation front, while core inflation has maintained its down momentum, it is food inflation that continues to remain a cause of concern, said Haja.

"While prices of onions and tomatoes shooting up will keep headline CPI elevated in the coming months, lower reservoir levels will likely affect Rabi output next year. Finally, with overnight rates close to the MSF and liquidity in deficit through November, any further pressings on OMO sales are unlikely. While we expect RBI to maintain its stance on withdrawal of accommodation, the tone of the monetary policy can turn more neutral," the economist added.

The Indian economy has been running full steam ahead, as various high-frequency data such as GST collection, IIP data, Core Sector Data, PMI etc., all are near multi-year highs which firmly proves that despite the turmoil in the global macroeconomic environment, the growth story of India is on track to drive the global economy. India’s Gross Domestic Product (GDP) for Q2FY24 came in at 7.6% which was beyond expectations of several economists who expected GDP to grow at 6.8%. The GDP print was even ahead of RBI’s prediction of 6.5% for Q2FY24, noted Omkar Liladhar Kamtekar, Research Analyst, Bonanza Portfolio noted.

"Although inflation eased to a 5-month low in Oct – 23, it has been above the medium-term target of 4 per cent for 49 consecutive months. We expect inflation to remain benign in the short term except for any extraordinary events. Additionally, we do not foresee any major foreign central banks lowering interest rates, which might prompt a rate cut back at home. Therefore, according to us the earliest likelihood of a rate cut is in Jun – 24 or Aug – 24. Hence, in the upcoming meeting the policy rates should be unchanged, with a hawkish tone," Kamtekar added.  

Furthermore, with several factors aligning in favour of India that are proliferating growth across sectors, our understanding is the stance of MPC will remain calibrated to mitigate inflationary pressures while supporting sustainable growth. Hence, we believe the policy stance would also remain unchanged, said Kamtekar.

In the previous meeting recognizing the resilience of economic activity, the RBI Governor noted the recovery in several sectors, including manufacturing, services, and construction. The MPC retained its GDP growth forecast for FY24 at 6.5%, emphasizing the need for supportive measures to sustain growth momentum keeping the policy rates unchanged for the 4th successive time since Feb – 23 and preserving a policy stance of withdrawal of accommodation.