Madan Sabnavis, chief economist at Bank of Baroda said, “Given the rather uncertain global environment and the possible impact on inflation and the fact that currently, inflation has been averaging close to 5.9 per cent in the last two months, a status quo on the repo rate will be the logical outcome from the policy.”
“While liquidity is tight presently, any measure to augment the same will be indicative of the RBI's view on the permanency of this situation. We believe this is transient, but would tighten once again in December when the advance tax payments are due,” added Sabnavis.
Dragged down by manufacturing and mining, India’s Q2 FY25 GDP came in at 5.36 per cent year on year versus RBI’s estimate of 7 per cent, street expectations of 6.5 per cent, and previous reading of 6.7 per cent, marking the slowest growth in seven quarters. Going by the first half economic growth, the second half would now need to compensate at over 8 per cent to reach RBI’s estimates of 7.2 per cent which is fairly unachievable and RBI will have to cut its growth expectations hereon. Meanwhile, Nominal GDP came in at 8 per cent, the lowest since December 2020. On the other hand, retail inflation rose to a 14-month high of 6.2 per cent (above the MPC’s 6 per cent upper tolerance level) in October from 5.5 per cent in September.
The repo rate was raised by 250 basis points cumulatively between May 2022 and February 2023 and since then has remained unchanged at 6.5 per cent.
Net durable liquidity surplus as of November 20, 2024, was Rs 1.83 lakh crore. In the October policy, the MPC members had decided by a majority of 5 out of 6 to keep the policy repo rate unchanged at 6.5 per cent and unanimously decided to change the stance to ‘neutral’ and continue to focus on achieving durable alignment of inflation with the target, while supporting growth.