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Synopsis : SBI forecasts the RBI's first rate cut in Q3 FY25, maintaining the "withdrawal of accommodation" stance. India’s GDP grew 8.2% in FY24, with inflation expected to decrease to 3% by July 2024. Liquidity conditions have fluctuated, with a recent deficit mode due to surplus government cash balances.
As the Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) meeting approaches, the State Bank of India (SBI) has provided insights on the expected policy directions. According to SBI, the RBI is unlikely to cut rates until the third quarter of FY25. This projection is based on the current economic conditions and anticipated trends in both domestic and global markets.
SBI's research suggests that while most emerging economies' central bank actions are influenced by advanced economies, India stands as an exception. The expected rate cut in Q3 FY25 will be shallow, aimed at gradually enhancing liquidity rather than providing immediate, substantial relief.
Inflation dynamics are a key factor in this forecast. SBI anticipates a decline in CPI inflation to 3% by July 2024, before it peaks at 5.4% in September, and then stabilizes below 5% for the remainder of FY25. This inflation trajectory supports the continuation of the RBI's current stance on maintaining the withdrawal of accommodation.
On the growth front, India’s economy showed robust growth of 8.2% in FY24 compared to 7% in FY23. With a favorable investment climate and historical Incremental Capital Output Ratio (ICOR) figures, SBI forecasts a growth rate of 7.5% for FY25. This optimistic outlook is underpinned by strong domestic fundamentals and resilient economic performance.
In summary, while global economic conditions and advanced economy central bank policies influence many emerging markets, India’s unique economic landscape supports a more tailored approach by the RBI. The anticipated rate cut in Q3 FY25, alongside a steady policy stance and manageable inflation, reflects a balanced approach to sustaining economic growth and stability.
Related Questions
1. When does SBI project the RBI to cut rates, and what is the expected nature of this cut?
SBI projects the RBI to cut rates in the third quarter of FY25, with the cut expected to be shallow and aimed at gradually enhancing liquidity rather than providing immediate, substantial relief.
2. What are the key factors influencing SBI's projection on RBI's rate cut?
SBI's projection is influenced by factors such as current economic conditions, anticipated trends in both domestic and global markets, and inflation dynamics.
3. What is SBI's forecast for CPI inflation and economic growth in FY25?
SBI anticipates CPI inflation to decline to 3% by July 2024, peak at 5.4% in September, and stabilize below 5% for the remainder of FY25. It forecasts a growth rate of 7.5% for FY25.
4. How does SBI characterize India's approach to monetary policy compared to other emerging economies?
SBI suggests that India's approach to monetary policy is unique, with less influence from advanced economies compared to most emerging markets.
5. What factors contribute to SBI's optimistic outlook on India's economic growth despite global economic conditions?
SBI's optimistic outlook on India's economic growth is supported by strong domestic fundamentals, historical Incremental Capital Output Ratio (ICOR) figures, and a favorable investment climate.
