This is one crystal ball almost everyone likes gazing at – that of movement of interest rates. The biggest bank in the country State Bank of India (SBI), the number of customers of which is equal to the combined population of the US and Russia, has said that the Reserve Bank of India (RBI) is unlikely to slash the benchmark repo rate until the second quarter of FY25. The SBI report has even said that the central bank which is currently seized with the overriding task of inflation management is unlikely to opt for a rate cut “under any circumstances”.
As expressed by many economists in the public domain, the SBI team of economists, too, thinks that the RBI would leave policy rates unaltered. The repo rate is currently at 6.5%, which the SBI report labelled as the “new normal”.
The RBI will make its announcement on December 8.
Incidentally, to tame inflationary forces, the RBI raised the repo rate – the rate at which the RBI lends money to commercial banks – by 2.5 percentage points to reach 6.50%. Since April 2023, the rate has been maintained at that level.
SBI economists constructed four scenarios of repo rates using artificial neural network (ANN) model of machine learning. “Domestically, we believe at 6.50 per cent, we are in for a prolonged pause, no rate reversal cycle till June ’24 stance,” the report said. “We believe the stance should continue to be withdrawal of accommodation as inflation is unlikely to tread below 5 per cent in rest of the FY24; as amidst the structural change in liquidity is making its forecasting difficult, it should be looked at with a completely different prism,” it added.
According to the report, the growth was expected to remain resilient. It mentioned risks mostly arising out of the external sector such as higher oil prices pushing up inflation and tighter global financial conditions are key risks weighing on currency inflation.
Incidentally, the cumulative credit of All Scheduled Commercial Banks (ASCBs) rose by 20.6% year-on-year (Y-o-Y) as of November 17, 2023 compared to 16% last year.
Growth came fast and furious from sectors such as housing/commercial real estate which rose by 35+ % (year-on-year) and civil aviation with a fantastic growth of 67%.
Credit to the non-banking financial sector recorded 22% growth (also Y-o-Y).
“Overall, industry credit reported growth of 6 per cent. However, chemicals, metals, textiles, glass, and food processing reported double-digit growth. In infrastructure, roads reported 9 per cent growth while telecom and railway reported growth of 7 per cent each,” the report emphasised.
SBI economists, however, also mentioned the areas of concern, most of which revolved around the agri sector. Among the Rabi crops, wheat sowing recorded deficit in the area which was down 5% for the week of November 24. Sowing of major wheat, pulses and some oilseeds suffered delays due to El Nino’s adverse effects. Incidentally, the RBI governor has been cautioning about possible EL Nino damage to the agri sector intermittently.
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