MC India Inc CEO Survey: Executives strap in for unchanged inflation, interest rates

The RBI, which must keep retail inflation at 4 percent with a tolerance range of 2-6 percent, has left the policy repo rate unchanged at 6.5 percent since February 2023 after raising it by 250 basis points in 2022-23.

India's top business leaders largely expect inflation and interest rates to remain unchanged for the next six months, a Moneycontrol survey of chief executive officers (CEOs) has found.

According to the survey, 62 percent of the 53 respondents see inflation holding steady for the first half of 2024, though another 23 percent see prices rising at a slower pace.

Also Read | MC CEO Survey: What are the key findings, who participated and other questions answered

Of the remaining 15 percent of respondents, half either expect inflation to rise or are unsure about the outlook, illustrating the uncertainty attached to prices.

To be sure, the Reserve Bank of India (RBI) expects headline retail inflation to ease in 2024.

According to data released on January 12, Consumer Price Index (CPI) inflation rose to a four-month high of 5.69 percent in December. It is, however, expected to decline to 4 percent in July-September 2024 on account of a favourable base effect before rising to 4.7 percent in the last quarter of the year, the Indian central bank's forecasts say.

On the other hand, wholesale inflation, which is more aligned with the changes in costs faced by companies, is expected to rise in 2024.

In 2023, a fall in global commodity prices compared to the previous year dragged down Wholesale Price Index (WPI) inflation sharply. It averaged exactly 0 percent in January-November 2023, with the second half of the year seeing wholesale inflation in negative territory.

The WPI inflation data for December will be released at noon on January 15.

According to CEOs, leading a diverse set of businesses such as banking, FMCG, and startups, keeping inflation in check is seen as a key priority for the government.

With the double shock from the coronavirus pandemic and Russia's invasion of Ukraine disrupting supply lines, prices have fluctuated wildly over the last couple of years, with key commodities such as energy and food items witnessing a sharp rise in prices.

The government has responded with a raft of measures to bring down retail prices of key food items such as vegetables, cereals and pulses.

The findings of Moneycontrol’s poll are in line with the latest Business Inflation Expectations Survey, conducted by the Indian Institute of Management, Ahmedabad. The survey, released on January 6, found that while the one-year-ahead inflation expectations of Indian businesses had declined to 4.04 percent in November 2023, on average, expectations of firms had "remained anchored around 4.2 percent for the past six consecutive months".

Steady on interest rates too

The RBI, which is mandated to keep CPI inflation at 4 percent with a tolerance range of 2-6 percent, has left the policy repo rate unchanged at 6.5 percent since February 2023 after raising it by 250 basis points in 2022-23 to curb price rises. And Indian CEOs expect the central bank's Monetary Policy Committee to stay pat on rates in the coming months.

As many as 59 percent of the CEOs surveyed think interest rates will likely remain unchanged in the next six months, while 30 percent expect them to fall during the period.

Mirroring the responses on the inflation outlook, around 11 percent think interest rates may either rise or are not sure about the direction they might move in.

Economists have been predicting that the RBI may look to cut the repo rate around the middle of 2024 as it gains clarity on CPI inflation reaching the medium-term target of 4 percent.

"With the global monetary policy backdrop turning more benign, we bring forward our rate cutting cycle, now expecting RBI to deliver interest rate reductions from April-June, probably in the June MPC (meeting)," said Rahul Bajoria, managing director and head of EM Asia (ex-China) Economics for Barclays, following the release of CPI data for December on January 12.

Bajoria expects the RBI to cut the repo rate by 75 basis points in the second half of 2024.

One basis point is one-hundredth of a percentage point.

While CEOs don't think interest rates will change in the first half of 2024, they are hoping the authorities will help in easing access to financial services through a variety of methods including a single window for know-your-customer (KYC) checks across products, more liberal farm loans and low-cost financing schemes to bolster infrastructure development in tier 2-3 areas.