RBI MPC, Data Preview - Policy Support Inevitable; CPI At 5.75%; WPI At 2.1%; IIP At 3.5%: Nirmal Bang

Nirmal Bang Report

Gross domestic product growth at 5.4% in Q2 FY25 was significantly below the Reserve Bank of India’s estimate of 7% and a downward revision in the FY25 GDP estimate of 7.2% is a given. We believe a shift - in the policy narrative of the Monetary Policy Committee is inevitable, starting with acknowledging the growth slowdown and the fact that counter-cyclical support is required.

We are not completely ruling out a rate cut in the December MPC meeting yet our base case remains a rate cut in February 2025 as inflation moderates closer to 5%. While the RBI is likely to commit to liquidity support as necessary, it may refrain from a blanket cut in the cash reserve ratio given some of the macro-prudential tightening measures. A targeted CRR cut for lending to secured segments may be seen as more appropriate, if at all.

Consumer price index inflation in Nov-24 is seen moderating to 5.75% in Nov-24 from 6.2% in Oct-24 largely led by moderation in vegetable prices. Core inflation is expected to remain benign at 3.62% in Nov-24 versus 3.67% in Oct-24 supported by lower gold prices. We have raised our CPI estimate for FY25 to 4.9% from 4.6%.

Wholesale price index inflation is seen at 2.1% in Nov-24 versus 2.36% in Oct-24 led by moderation in food prices. Core WPI inflation is expected to remain benign at ~0%.

Index of industrial production growth is seen at 3.5% in Oct-24 versus 3.1% in Sep-24 led by higher steel production and some festive rebound.

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