India Ratings is expecting the Reserve Bank of India (RBI) to change its stance from calibrated tightening to neutral, said Devendra Pant, chief economist at the agency.
The government on Tuesday appointed former finance secretary Shaktikanta Das as the new governor of RBI after Urjit Patel resigned abruptly on Monday.
“We believe that there will be a change in the monetary policy stance from calibrated tightening, which they (RBI) had adopted in August policy, continued in the October policy. So first the change in stance from calibrated tightening to neutral and post that there would be a rate cut. It can go anyway but we believe first there will be change in stance followed by the cut,” said Pant.
The government on Wednesday announced key macroeconomic numbers with Index of Industrial Production (IIP) in October hitting its highest level in 11 months and retail inflation dropping to its lowest level in 15 months in November.
“Inflation has surprised on the downside. The expectation was that once minimum support price (MSP) hike comes into the picture, there will be a push to inflation but that hasn’t happened and in fact, what we are seeing is the market prices are much below the MSP for many kharif crops. So that is out. Secondly, crude has eased off considerably from somewhere around mid-80s to hovering around USD 60 per barrel. The currency has appreciated compared to where it was a month and a half back. So that is reflecting in the consumer price index (CPI) inflation,” said Pant.
“The fiscal and also the monetary policy has been unusually tight in the last couple of years and getting 2-3 percent fiscal deficit remains a significantly challenging task. So fiscal deficit has been set at 3.3 percent this year. I think this will be difficult to meet but as of now, we are keeping our fingers crossed to see what is the final number, what is the revised number in February that the government comes up with. However, my sense is that given that all the leading indicators in November is showing a trend, which is a negative territory, fuel consumption is now at a significantly low levels. Oil consumption at diesel, kerosene, LPG, everything has decreased in November so as the passenger car vehicle sales. So automatically this will translate into a lower index of industrial production (IIP) number and also a lower growth numbers for Q3 and Q4 and that is a matter of more concern to the market right now," said Soumya Kanti Ghosh, group chief economic adviser at State Bank of India.