Bank of America’s Jayesh Mehta believes that the peak of inflation and the worst of inflation is now behind us. Looking at the WPI data and CPI data, India does not have to worry about inflation for the time being unlike other countries. Although people were expecting a temporary pause on interest rates, it is unlikely that there will be a rate cut in the near future. However, there is a 50% probability of a rate cut in the first quarter of the 2024 calendar year. The IIP data for March was weak, but growth expectations for FY24 should still be in line with the RBI’s projections. The focus may now move to growth and the balance between growth and inflation could bring about a rate cut in the first quarter of next year.
#India #worry #inflation #time #Jayesh #Mehta
After looking at the WPI data and CPI data should we say that the peak of inflation and the worst of inflation is behind us?
Absolutely, so even if you look at when RBI kind of paused, they were also thinking on that lines but well the actual numbers definitely gives very encouraging sign, so definitely I think unlike other countries we do not have to now worry about inflation for the time being. What does it do to your RBI rate expectations that hit the pause already, do you expect a rate cut soon?
That is a big question. So, if you really look at their language, people were expecting that it is a temporary pause and there could be a hike depending on the data and stuff like that but that was very natural to say especially when you fought so long for getting inflation into control, you just do not let it slip away so simply right, so I think that is one part of it.
Now, with the current inflation data, there are very few people who are thinking that there could be a rate hike because of the language spoken in the last policy. They have also given up the rate hike situation. As far as rate cut is concerned, right now of course the easiest path is to follow what US is doing.
I do not think we really should look at the rate cut at this juncture but you never know, I think first quarter which looked like completely away from the rate cut, I would give now maybe 50% probability of a rate cut in first quarter of 2024 calendar. So last quarter of this financial year we might see a rate cut hopefully if the things settle down much better.
IIP data is pointing to a bit of sluggishness, the IIP data for the month of March was not too strong, what does it do with respect to the growth expectations that we should factor in for FY24.
We will still continue and I am a little bit more optimistic than the economist, so I will still go with the RBI growth projection, but with the IIP number coming lower and then second half growth projection for the market broadly is looking lower that is the reason for my 50% probability for rate cut which I was not really expecting.
So, for US cutting the rate, we do not need to really cut the rate but then the focus might actually move to growth and the balance growth and inflation focus could kind of bring a rate cut in first quarter next year, of course there are some people in the market looking at December quarter also.