Key Highlights:
- The overall economic outlook remains upbeat despite challenges in specific sectors. RBI is likely to revise its growth projections upward.
- While headline inflation is elevated, primarily due to rising food prices, core inflation remains relatively subdued.
- The systemic liquidity has consistently remained in deficit since early December 2023, and money market conditions remain tight.
- The RBI will likely continue to support liquidity conditions through variable-rate repo auctions (VRR), potentially considering an extension in their tenor.
- We expect the MPC to maintain the current interest rates during the forthcoming policy meeting. However, there is a potential for a shift in stance to “neutral” in the February policy.
- MPC will consider cutting rates in Q2FY25 when headline inflation inches closer to the 4% mark.
