The good news this morning was that India’s GDP growth forecast is now significantly better, with the Reserve Bank of India (RBI) pegging it at 7 per cent versus 6.5 per cent earlier.
The central bank has cited robust domestic demand, buoyancy in construction activity, gradual rural sector recovery, healthy corporate balance sheets and factories running at improved capacities for optimism. Risks from a prolonged geopolitical turmoil and global economic fragmentation could pose risks to the GDP cheer though, with improved exports, the drag from external demand is expected to moderate.
GDP in the current quarter is now pegged at 6.5 per cent against the 6 per cent estimate earlier while in the January-March quarter of 2024, the estimate has been revised upwards to 6 per cent from 5.7 per cent earlier.
The RBI’s optimism comes close on the heels of S&P global predicting that India will remain one of the three fastest-growing major economies globally for the next three years and become the third-largest economy by 2030. And with growth back on track, it was only to be expected that lending rates will not be increased any further.
So the Monetary Policy Committee (MOC) has decided unanimously to keep the repo rate — the rate at which the RBI lends to banks and which determines key lending rates such as housing and vehicle categories — unchanged at 6.5 per cent.
Sanjeev Agrawal, president of the PHD Chamber of Commerce and Industry, said this status quo in interest rates will ensure financial stability, check inflationary pressures and promote continued economic growth.
Property consultant Anarock Group termed the decision to leave lending rates intact “an extension of the festive bonanza” by the RBI since the last MPC meeting had also voted for status quo. It further said the rate pause would give homebuyers another opportunity to make cost-optimised home purchases. The housing market in India is on a bull run so that no hikes in lending rates will add to the overall positive consumer sentiment.
Though status quo on lending rates was widely expected, when can we hope for a cut?
CBRE Chairman & CEO Anshuman Magazine pointed out that “expected inflation within the comfortable range will further rekindle the hope of a declining rates regime.”
Inflation remains the big elephant in the room, with RBI Governor Shaktikanta Das saying that inflation management cannot be on auto pilot as the consumer price inflation in November is expected to be high (the data comes with a lag) and the future path remains clouded by uncertain food prices. The inflation tolerance band of the central bank has been breached consistently. So while inflation continues to be a pest, any rate cut hopes must be put on the backburner for now.
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