Quote on RBI policy by Dharmakirti Joshi, Chief Economist, CRISIL

RBI policy by Dharmakirti Joshi, Chief Economist, CRISIL
Wait and watch
The Reserve Bank of India’s (RBI’s) move to keep policy rates unchanged was widely expected. After a cumulative hike of 250 basis points (bps) last fiscal, the central bank has moved to the sidelines to see its impact on growth and inflation play out this fiscal.

Growth in gross domestic product has been resilient so far, with a sharp uptick to 6.1% in the last quarter of fiscal 2023.

Private consumption demand, however, was weaker than other segments. This is likely to moderate demand conditions in the current fiscal given that bank lending rates are now higher than the pre-pandemic five-year average.

A sharper slowdown in advanced economies will also weigh on growth, particularly in the second half of the year.

Meanwhile, inflation based on the Consumer Price Index has begun moving downwards, in line with RBI expectations.

However, risks from El Nino remain high and these could impact the upcoming kharif crop and fuel food inflation. While the India Meteorological Department projects monsoon to be normal overall, its temporal and spatial distribution will critically affect food output this fiscal.

The central bank remains vigilant of global volatility. Even as central banks in major advanced economies have reduced the pace of rate hikes, inflation rules are above their target and face upside risks from tight labor market conditions.

We expect RBI to maintain the status quo on rates this fiscal and initiate cuts in the January-March quarter of 2024.

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