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Anand Rathi Report
A dovish pivot?
Domestic and global conditions have shifted considerably since the June Monetary Policy Committee meeting. Domestically, the balance of growth and inflation appear more dovish. Good rainfall and sowing should help soften food prices, while weak commodity prices and already restrictive policyrates are likely to keep core inflation in check.
The food price momentum is abating, with the AR Food Price Index at 7.5% in Jul'24, down from 9.2% in the previous month. Updating the CPI weights based on the latest household-expenditure survey suggests current inflation could be ~4.4% for Jun, compared to 5.1% with current weights.
Growth is also moderating, influenced by the elections, heat and restrictive rates. Weak data from the US and China further support this dovish outlook. The Fed's recent decision to hold rates steady amid the worsening labour market has heightened concerns regarding a recession, making a rate cut at the Sep-24 meeting more likely.
Combined with weak growth in China and the euro zone, the RBI may start taking downside risks to growth seriously.
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