Panorama – August 2024
Panorama August 2024 edition is out now!
Panorama is a meticulously crafted report that offers a comprehensive view of the macro factors and market trends shaping India’s economic landscape.
Here are the key insights from the report:
- Many central banks in developed markets, except for the Bank of Japan, are now easing monetary policy as inflation slowly returns to the target. However, RBI has maintained the status quo on rates since February 2023, despite underlying inflation, as measured by the Core CPI, remaining below the target.
- Strong economic growth gives the RBI policy space to prioritise inflation control. The RBI expects headline inflation to remain above the target for at least the next four quarters. RBI surveys also suggest that households and firms expect inflation to rise in the coming quarters.
- Inflation is primarily driven by food, particularly vegetables. Excluding vegetables, it has remained below the 4% target since January 2024. A normal and well-distributed monsoon would lower food inflation and open up space for monetary policy easing.
- The RBI is concerned about banks’ reliance on short-term non-retail deposits and other liabilities. Hence, banks may need to increase deposit rates to attract household financial savings (retail deposits). Additionally, the banking sector’s credit-to-deposit ratio remains historically high. The credit-to-deposit should improve as the government reduces its balances with the RBI by increasing spending. However, an increase in currency demand in H2 and OMO sales by RBI could further deteriorate the ratio.
- The Indian G-sec supply is budgeted to be lower in FY25 as the government targets a lower fiscal deficit of 4.9% of GDP in FY25. The demand, on the other hand, is expected to remain robust due to the inclusion of Indian G-secs in the JP Morgan Emerging Market Bond Index suite. Hence, G-sec supply-demand dynamics remain favourable for the debt market. Anticipated monetary policy easing by RBI is also supportive.
