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Last Updated : Dec 03, 2019 12:56 PM IST | Source: Moneycontrol.com

Inflation may remain high for few months; RBI to focus more on growth with accommodative stance for longer period

Sajjid Chinoy, Chief India Economist at JP Morgan also told CNBC-TV18 that inflation will remain high over next few months.

Sunil Shankar Matkar

The Reserve Bank of India (RBI) is expected to cut repo rate at least by 25 basis points (bps) on December 5 keeping stance "accommodative" for a longer period considering the current economic environment, experts said.

The three-day Monetary Policy Committee's meeting began on December 3 and the decision will be announced on December 5.

"RBI will be clear in its policy that growth is its top priority. RBI should stay in ‘accommodative’ mode for a longer period," Soumya Kanti Ghosh, Group Chief Economic Adviser at State Bank of India told CNBC-TV18.

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Most experts expect the repo rate to be at 4.9 percent in the December bio-monthly policy, down from 5.1 percent earlier. For reference, 100 bps = 1 percentage point.

They feel the RBI may cut rates by another 25 bps in the next policy meeting in February 2020, despite higher inflation levels than its targetted 4 percent, and as a result, the final repo rate at the end of March 2020 could be 4.65 percent.

Pronab Sen, country director of the International Growth Centre (IGC) disagreed with other experts who are in favour of accommodative stance, and feels the stance could be "neutral".

Sen expects a 50 bps repo rate cut in the December policy meet and final repo rate at FY20-end at 4.5 percent as deflationary trends may be seen emerging across many segments.

"More than 5 percent inflation is going to stay for at least three months. It is going to be a tough call on inflation by RBI," Samiran Chakraborty, Chief Economist, India at Citibank said.

Sajjid Chinoy, Chief India Economist at JP Morgan also told CNBC-TV18 that inflation will remain high over the next few months.

India's retail Consumer Price Index (CPI) inflation surged to 4.62 percent in October, breaching the RBI's medium-term target of 4 percent, driven by higher food prices.

CPI inflation was 3.99 percent in September and 3.38 percent in October 2018.

The Indian economy grew at 4.5 percent in the quarter ended September 2019 (against 5 percent in Q1FY20) and the growth may decelerate further to around 4 percent in December quarter, which clearly indicates the worst is not yet behind us, despite recent several government measures, experts feel.

As a result, many reduced their full-year growth target to below 5 percent and would prefer rate transmission to more policy rate cuts going forward.

"Growth is the dominant challenge in India over the past three quarters. Geopolitical concerns have begun to ebb. It is now less about policy rate cuts, more about bank rate cuts," Chinoy added.

Sonal Varma, Managing Director and Chief Economist (India and Asia ex-Japan) at Nomura also said Q2 GDP growth indicated that demand remained weak and FY20 GDP growth may come below 5 percent.

"We are looking at growth downgrades for FY20 and even FY21. Demand is very weak in private investment and underlying credit issues have not been resolved," she added.

Soumya Kanti Ghosh, who expects repo rate in the range of 4.6-4.9 percent at the end of FY20, said RBI's FY21 GDP growth target could be 7 percent but would be happy with it at 6 percent as well.

The RBI in October cut its full-year growth forecast to 6.1 percent from the 6.9 percent projected in the August policy meeting.

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First Published on Dec 3, 2019 12:56 pm
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