Making Sense

"The best way to finish an unpleasant task is to get started." If forecasts of El Nino conditions develop then inflation and growth could turn for the worse.The finance ministry on Thursday raised concerns over the possible impact of El Niño conditions on India this year, saying if recent forecasts came true, the country could see lower agricultural output and higher inflation. Yesterday, we had the external MPC member Shashikant Bhide interview published in Business Standard . In his interview, he emphasises the need to see inflation within the tolerance band in 2023-24. Despite the decline in global commodity prices, pass through of decline is not clear. The areas of concern are core inflation and to some extent the fuel and light inflation, which is in double digits. Real GDP increased 2.7% in Q4 (adv est 2.9%) of 2022 following a third quarter real GDP rise of 3.2%. The updated estimates primarily reflected a downward revision to consumer spending that was partly offset b...

RBI will announce the monetary policy decision today where the consensus is for a last 25 bps rate hike in the current cycle to a terminal rate of 6.50%.  While there is a loss of growth momentum but the economic activity is in a position of strength. The major headwind is from a global slowdown as a result of sharp interest rate hikes. Headline inflation is to decelerate in the quarters ahead but the stickiness of core inflation is a concern and RBI rhetoric during the last policy focussed on putting the inflation beast down.  I am leaning with the consensus expectations of a 25 bps rate hike. Regarding the monetary policy stance, I think it would continue with "withdrawal of accommodation" Let's begin by reviewing some of the important data points: 1. Manufacturing PMI reading came in at 55.40 clearly showing a loss of growth momentum though still in expansion mode. A key area of weakness in the report was "Exports" which increased marginally at best and moder...