As the food inflation is expected to ease after a healthy monsoon, coupled with benign non-food inflation, Crisil has expected that this is likely to move the monetary policy committee to cut the repo rate in December. Crisil has anticipated a 25-basis point reduction in the repo rate during the MPC’s policy review meeting in December.
Crisil has also expected gross domestic product (GDP) growth to moderate to 6.8 per cent this fiscal compared with the Reserve Bank of India’s (RBI) forecast of 7.2 per cent. Crisil, in its report, stated that a ‘neutral’ stance also affords the MPC the flexibility to respond to unexpected disruptions in the disinflation process from exogenous sources.
“Easing food inflation coupled with benign non-food inflation, is expected to move the MPC to cut the repo rate in December. Kharif arrivals from this month, along with prospects of healthy rabi production, are expected to soften food prices in the second half of this fiscal. That said, any volatility in food prices due to weather shocks (such as excess rains), and international commodity price movements will be monitorable,” as stated in the report.
The report stated that the shift in the MPC’s policy stance is the first step of a policy pivot. While the MPC remains cautious given prevailing uncertainties, it has increased the elbow room for rate cuts. As per the report, the RBI remains wary of supply shocks upending the durable decline in inflation.
As far as the global signals are concerned, the report stated that the geopolitical uncertainties and a rise in international prices of some commodities have added to the upside risks. As for food prices, unseasonal weather shocks bear watching. The report added that the upcoming US presidential elections could also have a bearing on global trade flows and market volatility.
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