Comments
A repo rate cut may be some distance away as the RBI’s Dynamic Stochastic General Equilibrium (DSGE) model for the Indian economy has projected retail inflation to reach 4.8 per cent in FY25, which is above the monetary policy committee’s. 4 per cent target.
The trajectory of CPI inflation indicates a moderation after Q3 FY24 2023-24, with annual CPI inflation averaging 5.3 per cent in FY24 2023-24 and moderating further to reach 4.8 per cent in FY25, per the model, whose findings have been presented in RBI’s latest monthly bulletin.
Going by the DSGE model’s retail inflation projection, the repo rate is likely to remain unchanged at 6.5 per cent for the better part of FY25 as the monetary policy committee has decided to remain focused on withdrawal of accommodation to ensure that inflation progressively aligns to the 4 per cent target, while supporting growth., according to experts.
As per RBI’s retail inflation projection in the monetary policy statement, CPI inflation is projected at 5.4 per cent for FY24 2023-24, with Q3 at 5.6 per cent and Q4 at 5.2 per cent. CPI inflation for Q1 FY25 2024-25 is projected at 5.2 per cent; Q2 at 4.0 per cent; and Q3 at 4.7 per cent. The risks are evenly balanced.
“There are both favourable demand side drivers and easing of supply side constraints at work. GDP is expected to sustain momentum alongside moderation in inflation, despite global headwinds. Upside idiosyncratic risks to the inflation forecast cannot, however, be ruled out,” as per the bulletin.
Real GDP growth
Real GDP growth for 2023-24 is projected at 7.1 per cent, followed by a relatively slower and uneven expansion of 6 per cent during 2024-25, according to the DSGE model.
RBI had bumped up its real GDP growth projection for FY24 to 7 per cent from its earlier 6.5 per cent projection in its latest monetary policy review.
Real GDP growth for Q1 FY25 (April-June) has been projected at 6.7 per cent; Q2 (July-September) at 6.5 per cent; and Q3 (October-December) at 6.4 per cent, with the risks being evenly balanced.
“Our economic activity index (EAI) nowcasts GDP growth for Q3 FY24 (October-December) at 6.7 per cent. Looking ahead, projections from our Dynamic Stochastic General Equilibrium (DSGE) model for the Indian economy, which captures the dynamic interactions between various agents in the economy as well as their response to shocks, show that the growth is likely to be sustained in H2 FY24 and FY25 despite some moderation,” per an article in RBI’s latest monthly bulletin.
The DSGE model has arrived at FY24 and FY25 real GDP growth projections under the assumptions of (i) global GDP growth of 2.6 per cent and 2.1 per cent for 2023-24 and 2024- 25, respectively; (ii) global CPI inflation of 5.5 per cent and 4.0 per cent for FY24 and FY25 respectively; (iii) unchanged policy repo rate and US Fed funds rate at 6.5 per cent and 5.5 per cent for the current and next financial year, respectively.
The model’s baseline forecast suggests that after a phase of high growth in the first half of FY24, the Indian economy is likely to undergo some moderation in subsequent quarters.
Comments
COMMENT NOW
Comments
Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.
We have migrated to a new commenting platform. If you are already a registered user of TheHindu Businessline and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.