Muted Growth Outlook Amid Global Challenges
The road ahead for India’s economy may be bumpy, but the headlights are still on. A challenging global backdrop and lingering tariff impacts are likely to keep growth projections on the slower side, according to a new report by SBI Mutual Fund.
Yet, amid all the caution, the festive sparkle seems to have lifted spirits. From shiny new cars to buzzing appliance stores, high-value discretionary spending is lighting up the data charts.
As the report put it, “A challenging external environment coupled with the impact of tariffs was expected to keep future growth estimates subdued, however high frequency data for festive season… looks promising.”
In short- while global clouds may linger, India’s shoppers are still bringing the sunshine.
Resilient Consumer Sentiment And Festive Boost
Financing activity in these segments has also remained robust, reflecting resilient consumer sentiment despite global headwinds. The report highlighted that the impact of the recent GST cuts is gradually filtering through the economy. October’s GST collections were in line with expectations, indicating steady consumption momentum.
Inflation And Liquidity Dynamics
- Inflation Outlook: Conditions remain supportive, with forward estimates staying close to the target level, even as current inflation figures continue to trend lower.
- Festive Liquidity Crunch: The festive season brought strong demand but fewer working days in October, tightening system liquidity.
- Cash Circulation Surge: Higher cash in circulation, a common festive trend, contributed to reduced liquidity in the banking system.
- RBI’s Forex Moves: Possible intervention by the Reserve Bank of India (RBI) in the forex market, where it may have supplied U.S. dollars while withdrawing Indian rupees, added to liquidity strain.
- Money Market Impact: Overnight money market rates stayed elevated and volatile, reflecting the tighter liquidity conditions.
Monetary Policy And RBI’s Next Moves
Even as the recent Cash Reserve Ratio (CRR) cuts continue to transmit through the system, core liquidity has been steadily reducing. This trend, the report suggested, has opened up expectations for potential Open Market Operations (OMOs) by the Reserve Bank of India in the fourth quarter to maintain adequate liquidity conditions.
Looking ahead, the forward outlook on growth and inflation, along with evolving risk factors, suggests some room for further monetary support. The December monetary policy review is expected to remain “live” for what could possibly be the last rate cut in the current cycle.
Conclusion: Supportive, But Cautious Policy Stance
The report emphasized that despite ongoing debates about the effectiveness of additional rate cuts, the current macroeconomic context provides sufficient space to keep monetary and liquidity conditions supportive of growth. It concluded by stating that there is no current case to speculate on a policy reversal.
(Disclaimer: This News Has Been Syndicated From ANI And Has Been Mildly Edited For Clarity)
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