RBI likely to continue with hawkish stance after Q2 GDP shoots above estimates; Here's what experts say | Mint
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Business News/ Economy / RBI likely to continue with hawkish stance after Q2 GDP shoots above estimates; Here's what experts say
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RBI likely to continue with hawkish stance after Q2 GDP shoots above estimates; Here's what experts say

Economists now say that with the Q2 GDP growth rate coming in well beyond expectations, the RBI may opt for a hawkish stance in its coming monetary policy decision on December 8.

India's GDP growth expanded 7.6 per cent in the September quarter. Photo: Aniruddha Chowdhury/MintPremium
India's GDP growth expanded 7.6 per cent in the September quarter. Photo: Aniruddha Chowdhury/Mint

The Indian economy grew 7.6 per cent during the July-September quarter for fiscal 2023-24 (Q2FY24), remaining the fastest-growing major economy in the world, according to the gross domestic product (GDP) data released by the statistics ministry. The Q2 GDP growth - supported by government spending and strong performance in manufacturing, mining, and construction sectors - was sharply above D-Street estimates as well as projections by the Reserve Bank of India (RBI).

Economists now say that with the Q2 GDP growth rate coming in well beyond expectations, the RBI may opt for a hawkish stance in its coming monetary policy committee (MPC) announcement on December 8. The economic growth would give space to the central bank, which held its rates for the fourth consecutive time in October to focus on food inflation, which it believes is ‘uncomfortably high’.

Also Read: India remains fastest-growing major economy, Q2 GDP growth beats RBI estimates: 5 key takeaways

Economists expect RBI to continue with hawkish stance

"This could be the start of some early signs that there is a rebalancing from services to goods in the economy. The GDP print for the second quarter does pose an upside bias for our full-year forecast of 6.5 per cent,'' said Sakshi Gupta, Principal Economist, HDFC Bank, Gurugram. 

‘’We expect the Reserve Bank of India to remain hawkish at the upcoming policy as growth continues to show strength while inflation risks linger on,'' added Gupta. Analysts also say that the central bank may start easing monetary policy in the second half of 2024.

"An economy on fire, and the persistent food inflation threat, suggest to us that the RBI will be in no hurry to loosen policy," Capital Economics' Thamashi De Silva said. De Silvia added that she expected the central bank to start its easing cycle in the second half of 2024, much later than most major emerging economies.

At its October bi-monthly MPC meeting, the central bank's rate-setting panel kept the benchmark repo rate unchanged at 6.5 per cent for the fourth straight meeting in the current fiscal 2023-24. Further, RBI Governor Shaktikanta Das had given early signs of expecting a robust growth in the September quarter, saying that it could be a ‘positive surprise’.

"The second-quarter GDP number, which will be released at the end of November, will likely surprise... looking at the momentum of economic activity, considering a few early data points and indicators, I can say that the second-quarter GDP number, when released, will probably surprise everyone on the upside," said Das.

Also Read: Inflation print, US Fed stance: Key factors behind RBI's hawkish pause on interest rates

Economists revise full-year FY24 GDP growth forecast

"The sharp upside surprise to the second-quarter GDP figures is a welcome sign, especially as it comes in the backdrop of a broad-based pickup across most non-agricultural sectors,'' said Upasna Bhardwaj, Chief Economist, Kotak Mahindra Bank. "We, however, expect the second-half growth to moderate. Having said that, the full year GDP numbers have got a big fillip after today's figures,'' she added.

Nikhil Gupta, Chief Economist, Motilal Oswal Financial Services also agreed. ‘'Overall, India's GDP growth remains extremely strong. At 7.7 per cent real growth in 1H, it is almost certain that the full-year growth will be revised upwards once again, probably to 6.5-6.6 per cent.''

Analysts noted that government consumption, fixed-asset investments, lower input prices and inventory restocking were likely key catalysts towards the GDP growth. Double-digit growth in manufacturing, electricity, and mining sectors also provided support while private consumption missed expectations."

"With a strong first half, full-year growth rates might be subject to an upward revision of 40-50 basis points compared to our present estimate,'' said Radhika Rao, Senior Economist, DBS Bank, Singapore.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.

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ABOUT THE AUTHOR
Nikita Prasad
Nikita covers business news and has been producing news on digital platforms since 2018. She writes on economy, policy, markets, commodities, industry. Her core areas of interests include infrastructure, energy, oil and gas, railways, and transport/mobility. She has worked for business news channels like Moneycontrol, NDTV Profit, and Financial Express in the past. If you have story ideas/pitches/reports or quotes/views to share, reach her at nikita.prasad@htdigital.in.
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Published: 01 Dec 2023, 06:03 AM IST
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