Expect RBI To Cut Repo Rate In February MPC Meeting: FICCI President

The Federation of Indian Chambers of Commerce and Industry is expecting the Reserve Bank of India to cut down the repo rate in the upcoming monetary policy committee meeting in February as inflation eases, according to its President Harsha Vardhan Agarwal.

India’s retail inflation moderated to 5.48% in November, but food inflation remained high at 9.04%.

While talking about inflation and its impact on the urban middle class and rural population, Agarwal told NDTV Profit that he expects the rates to be cut in the February meeting of the MPC. The meeting will be the first to be held after the appointment of new RBI Governor Sanjay Malhotra.

“From the industry perspective, yes, our expectation is that rate cuts should happen. Typically, what we have seen is that any rate cut doesn't have much impact on food inflation. And since the current inflation is mostly in that area, going forward, we would recommend and expect some kind of rate cuts,” he said.

While there have been some “green shoots” in terms of inflation coming down, the economic growth in the September quarter has been slower, the FICCI president said.

However, the growth rates can be brought back in the second half of the fiscal year on the back of more government spending, the industry body chief noted.

One of the major reasons behind the lag so far "has been the lower capex from the government side due to the elections in Q1", Agarwal said. "We believe this will pick up in Q3 and Q4, which will certainly help in bringing back growth rates."

He also underlined that rural growth has “bounced back” in India.

“We expect the overall growth rate this fiscal year to be somewhere around 6.5% to 7%. In terms of consumption, we are seeing good growth in the rural areas,” he said.

However, on the urban side, the middle class has been affected the most due to food inflation, the FICCI president explained. Agarwal expects the situation to normalise in two or three quarters.

“In urban areas, it’s the middle class that has been badly impacted, especially the lower middle class and upper middle class, because of food inflation. Hence, they have had to cut down on discretionary spending,” he said.

“I believe things will improve from here. But to come back to normalcy, it will take at least around two to three quarters,” he added.