Speaking to ET Now, Indranil Pan, Chief Economist, Yes Bank shared his perspective on the monetary policy outlook, saying,
“What Madan pointed out for the very near-term inflation expectations is absolutely correct. However, when you bring in the rate cut scenario, it is likely to be more a forward-looking Reserve Bank of India and while the monetary policy did not give out the number, the monetary policy report which comes out every half year has actually provided a 5.1% inflation number for Q3 of the next financial year.”
He added that while recent declines in vegetable prices and GST-driven changes have helped cool inflation, the RBI is unlikely to make policy decisions based on short-term movements.
“It is very difficult for me to see the RBI reacting to the short-term phenomenas of either the GST cuts or also the sort of fall in the vegetable prices that have been much more aggressive on the lower side as it was on the higher side in the previous years,” Pan said.
He also pointed out that base effects and food price risks could push inflation higher next year, potentially limiting the scope for immediate monetary easing.“Any rate cut, therefore, in my opinion, the bar is still quite high and can possibly only be delivered if there is a significant downside that we experience in terms of the growth prospects for the economy over the second half of the year which to a large degree is looking relatively unlikely,” he said.Despite expectations of a marginal slowdown in the second half, Pan believes growth remains on track.
“Yes, the second half growth is likely to be weaker than the first half growth, but nothing to upset the 6.8% growth forecast that the RBI is working with for the current financial year,” he noted.
When asked about the trajectory of urban consumption, Pan expressed cautious optimism while pointing to mixed signals from the GST changes and the ongoing festive season.
“From an urban consumption perspective and Madan did speak about the GST, I am slightly not really clear about how the GST will actually filter out in the system because if I read various news sprints, it clearly tends to indicate that at least for some commodities, not really the white goods but for some commodities people are, especially for the FMGG, the packaging sizes are being increased because of the GST rather than the prices of the packages being decreased because of the GST,” he explained.
He further added that while festive demand may get a temporary boost, uncertainties in sectors impacted by tariffs and potential job losses could weigh on consumption later.
“We really have significant amount of uncertainty with respect to the sectors that have been hit by the tariffs and those are the sectors that we need to watch out for for incremental job losses and therefore, the lack of income power in the urban sector,” Pan said.
Looking ahead, he warned that the post-festive period could bring a slowdown in demand.
“Because of the GST, some of the pent-up demand may actually be exhausted during the festive period and therefore, we can actually see consumption bias coming down quite significantly in the third and the fourth quarter of the current financial year,” he concluded.
In essence, while inflation remains within the comfort zone, both rate cuts and sustained consumption recovery hinge on how growth and employment trends evolve in the coming quarters. The RBI, for now, appears set to keep its policy stance steady, waiting for clearer signals before making any decisive moves.
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