Murthy Nagarajan, Head – Fixed Income, Tata Asset Management
“We expect the RBI to maintain its growth guidance for the current year at 6.5 percent, while revising its CPI inflation forecast lower to around 2.8 percent from 3.1 percent stated in August. This reflects the pickup in consumer spending, aided by the recent GST rate reduction and strong festival demand. While we do not expect a rate cut in this policy, given that forward one-year CPI inflation is projected closer to 5 percent, we believe the central bank will adopt a more dovish stance. The key concern remains transmission: despite 100 basis points of rate cuts, liquidity infusion of ₹5.5 lakh crore via OMOs, and a CRR cut of ₹2.5 lakh crore, borrowing costs remain elevated, especially for central and state governments.
Global developments are largely disinflationary, with lower commodity prices and weak demand due to tariff pressures. A stronger monsoon, 7 percent above normal, should further moderate food inflation. Underlying inflation trends remain subdued with capacity utilisation at about 75 percent. These factors could open space for further rate cuts of up to 50 basis points in the coming months, provided the RBI acknowledges the disinflationary spillover.
The fall in the rupee is not a major policy constraint, as it is cushioned by lower commodity and oil prices. Overall, we expect the Governor to highlight the growth impulse from GST cuts, signal comfort on inflation, and strike a dovish tone in the October 1 policy.”