Growth Vs Inflation: What Will Be The RBI MPC's Top Priority?

The RBI Monetary Policy Committee (MPC) is set to announce its decision tomorrow, November 5th, amidst mounting economic challenges. With GDP growth falling to a 7-quarter low of 5.4%, far below the anticipated 8%, and inflation climbing to 6.2%, exceeding the central bank’s comfort zone, the RBI faces the challenge of balancing growth concerns with price stability. Rajani Sinha, Chief Economist at CareEdge Ratings, emphasises that while inflation has been the central bank’s primary focus, the sharp decline in growth could force the RBI to consider a more balanced approach. A key question on the table is whether the RBI will reduce the Cash Reserve Ratio (CRR) to enhance market liquidity or Repo rate to boost the consumption. Rajani Sinha, however, believes that the RBI is unlikely to take any immediate action on interest rates cut in this meeting. Despite growing concerns over economic momentum, the central bank remains cautious due to persistent inflationary pressures. While food prices, a significant contributor to the inflation spike, are largely beyond the RBI’s control, their impact on inflationary expectations poses risks of more widespread price instability. This makes the central bank hesitant to cut rates prematurely. Looking ahead, Rajani Sinha suggests that February could present a window for the RBI to ease its stance, as CPI inflation is expected to drop below 5%. By then, the growth trajectory may also show signs of improvement, with GDP growth forecasted to rebound in Q3 and Q4, reaching an estimated 6.5% for the full fiscal year. According to her, The RBI is likely to maintain its cautious approach, focusing on immediate inflation control while monitoring growth trends. What does this mean for economic recovery and market expectations? How should investors and businesses interpret the RBI’s cautious approach? Watch this insightful discussion to uncover expert perspectives on the critical decisions shaping India’s monetary policy. Stay tuned for an in-depth breakdown of the factors influencing the RBI's policy.