RBI may stay nimble on rates as growth is seen slowing to 6.6%: Report
Crisil reports India's growth may slow to 6.6 percent this fiscal year. Foreign portfolio investor inflows improved significantly in July, boosting financial conditions. Systemic liquidity surplus widened, and money market rates softened during July. Bank credit growth remained strong, and bond yields declined, while the rupee weakened. The Reserve Bank of India may remain flexible on policy…
The Reserve Bank of India (RBI) may maintain flexibility on policy rates during the upcoming Monetary Policy Committee (MPC) meeting, as economic growth is projected to decelerate to 6.6% for the current fiscal year, according to a Crisil report. The report highlighted a positive improvement in India's financial conditions in July, primarily driven by a surge in net foreign portfolio investment (FPI) inflows amounting to USD 4.2 billion, the highest since September 2024.
This marked a significant shift from the previous five-month trend of net outflows, with the equity segment recording a net inflow of USD 2.1 billion compared to a net outflow of USD 5.2 billion.
Several factors contributed to the growth, including a widening systemic liquidity surplus, robust bank credit growth, and a softer yield on 10-year government securities. The money market rates also softened as the systemic liquidity surplus expanded due to FPI inflows, foreign currency non-resident (bank) deposits, and reduced currency in circulation.
The systemic liquidity surplus increased in July, with the central bank absorbing an average of Rs 1.07 lakh crore, or 0.4% of net demand and time liabilities (NDTL), up from Rs 0.78 lakh crore, or 0.3% of NDTL, in June. Additionally, bank credit growth remained strong at 17.7%, while the yield on the benchmark 10-year bond fell by 12 basis points to 6.77% in July.
However, the rupee faced downward pressure, weakening by 0.9% against the US dollar to an average of 95.8 in July, mainly due to a stronger greenback and rising crude oil prices. The rupee had depreciated by nearly 11% year-on-year, ending the month at 95.4. Overall, Crisil expects the MPC to remain flexible on policy rates, citing the expectation of a deceleration in growth to 6.6% this fiscal year.
The report cautioned that heightened cost pressures on producers, challenges to exports in a global context, and risks to agriculture from a below-normal monsoon and potential El Nino effects pose significant risks to the economic outlook. The key risk for financial conditions this fiscal year remains the geopolitical situation in the West Asia region, as it could lead to volatility in capital flows, the rupee, and oil prices.
Written by urgent.news from The Economic Times - Economy's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
