As the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) begins its three-day deliberations today, Jyoti Prakash Gadia, Managing Director of Resurgent India believes that the rate hike at the June meeting is a certainty. In an interview with Kshitij Bhargava of FinancialExpress.com, Gadia said a rate hike of 20 to 40 basis points can be expected from the MPC. He added that inflation is not expected to decline immediately. Jyoti Prakash Gadia added that fiscal measures as well as monetary policy measures could put a damper on inflation over the next 6-9 months. Here are the edited excerpts.
RBI has now started the rate hike cycle, do you think they will be aggressive going forward to get inflation under control?
RBI certainly faces one of the toughest tasks right now and has to walk a tightrope, balancing inflation against the growth trade-off. While the repo rate hike at the June meeting is a certainty, the RBI should keep it moderate and consistent, to avoid excessive volatility to support the growth revival that is still in its infancy. A rate hike of around 20 to 40 basis points is therefore expected at the June meeting.
How long do you think RBI’s MPC rate hike will continue?
The duration of the rate hike cycle and its intensity will directly depend on the stickiness of inflation. The real concern is the price of oil and other supply-side constraints that have been heightened due to the protracted war in Ukraine. Given the long duration of inflationary pressures, the rise in rates is expected to continue for the rest of the year, i.e. until March 2023.
With the current rise in interest rates, what does this mean for the Indian economy and in particular for companies that were looking to raise funds?
The increase in policy rates by the RBI is impacting bank lending rates and will make lending more expensive across all sectors and may lead to some initial hesitancy among entrepreneurs to borrow and grow their businesses. However, overall investment opportunities are attractive thanks to the government’s reformist agenda and investor-friendly policies under the PLI and FDI. This can create other sources of funds in addition to the regular availability of credit from banks.
Despite the growing cycle of interest, the growth momentum should pick up with the right kind of policy support and facilitate the impact of the recent emphasis on infrastructure development and the removal of bottlenecks in the framework. of the Gati Shakti program. Moreover, with cleaner and stronger balance sheets, lenders should also come forward and lend at competitive rates.
Inflation has been a big concern recently, when do you think the concern will start to subside?
Wholesale inflation above 15% and retail inflation close to 8% in April indicate inflationary pressures that are difficult to combat. The spike in oil and fertilizer prices can be directly attributed to the war in Ukraine, which in turn led to widespread inflationary trends across the world. This is mainly an external factor which is not immediately contained and simple monetary policy measures will not suffice in the current circumstances. Inflation is not expected to decline immediately. The government has already reduced excise duties on gasoline to partly reduce its prices. Similar fiscal measures, intended to complement monetary policy measures and an attempt to remove supply-side constraints, could put a damper on inflation over the next six to nine months.
What do you think of the fourth quarter GDP figures?
Fourth quarter GDP figures show a late growth rate of 4.1%, the lowest in four quarters, due to the localized impact of Omicron and inflationary pressures. This translated into a decline in the full-year GDP growth rate of 8.7% from previous estimates of 8.9%. The forecast growth rate for FY 2023 has been revised down by most experts to a range of 6.4% to 7.5%.
On the positive side, government spending on infrastructure and trends in the service sector point to robust growth opportunities while FMCG and other consumer products are seeing declines due to inflation and lower demand. However, GST collection figures are sustainable and growth in the core sector is also on the rise. With a normal monsoon forecast by the IMD, agriculture should also contribute to a reasonable growth trajectory. The uncertainties and volatility generated by the geopolitical situation seem to be the main obstacle to our sustainable growth objectives, which should be handled with discernment.