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RBI repo rate cuts: Expect RBI to start rate cuts by end of FY24: HDFC Bank chief economist

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The end of the repo rate hike cycle has been reached and the Reserve Bank of India (RBI) may start slashing the key interest rate in the last quarter of the current financial year (Q4FY24), Abheek Barua, chief economist at HDFC Bank told Raghav Aggarwal in an interview over phone. Barua said the Indian economy is expected to grow at 6.8 per cent in FY23, lower than RBI’s prediction and the National Statistical Office’s (NSO) estimates of 7 per cent. Excerpts here:


What are your expectations from inflation now that it is below RBI’s upper tolerance limit?

In this quarter, partly because of the base effect and genuine moderation on some core categories, we see inflation below 5 per cent. Then it will move above 5 per cent and stay in the 5-5.5 per cent range for the rest of the year.


The average retail inflation is expected to be around 5 per cent, possibly lower if things go well with the monsoon.

And what are your expectations from wholesale inflation?


WPI inflation is likely to remain negative for the next four months and then pick up. But it will stay subdued not only because of the base effect but also because of subdued commodity prices.

What do you think the Monetary Policy Committee (MPC) decision will be in the meeting next month?


Clearly, this is the end of rate hikes. At the current moment, the issue in the market is the tight liquidity condition. Liquidity is in surplus by a very small amount. What the RBI is not doing through rate hikes, it is doing through liquidity management. We may see some relaxation on the liquidity front by the second quarter of this year.

Do you think RBI might start cutting the repo rate soon?


There is a possibility of rate cuts but we will have to wait till the third quarter of the current financial year. Otherwise, we are expecting rate cuts in the last quarter of the current financial year.

According to the latest trade figures, both exports and imports have shrunk. Why do you think that has happened?


There is demand compression in the Western economies and that is leading to flat demand for many of the goods that we export, such as jewellery, textiles, engineering goods etc. There is also uncertainty in West Asia due to lower oil prices. The situation in China is also impacting regional demand.

We are, however, doing well in some areas like petroleum goods and automobiles.


There is a slowdown in the domestic economy, particularly on the consumption side, which is affecting imports. Gold demand has reduced, and non-oil and non-gold imports have slowed down.

While there is a fall in trade deficit numbers due to a sharper fall in imports, this also indicates that the domestic economy is not doing too well.


Although it is just the start of the year, how do you see the country performing on the fiscal deficit front?

There are concerns that this is an election year and that government spending might go up. I don’t think that is too much of a concern with this government as it has been fiscally prudent. Even if there is higher revenue spending, it will be offset by lower capital spending.


On the income side, tax revenue projections are quite conservative but a higher dividend payout by RBI might come as a relief. For me, the fiscal deficit is likely to be on target. If there is some overshoot, it will be very marginal.

Will the government be able to meet its disinvestment target of Rs 51,000 crore this year?


I don’t think this year is going to be particularly good for disinvestment. The target is low but the actual collections can actually be lower, given the global macroeconomic conditions and rate hikes.

What are your predictions for FY23 and Q4FY24 gross domestic product (GDP) numbers?


For FY23, we are predicting an annual GDP growth rate of 6.8 per cent. This is in line with our Q4 prediction of 4.4 per cent. Apart from the base effect, manufacturing could be a drag as the latest numbers show. This is playing out in the domestic market as well as in exports.

And what GDP growth are we looking at in the current year?


This financial year we are estimating a GDP growth between 5.8-6 per cent. In the current quarter, we are expecting India to grow at 6.8 per cent.

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