Come August and the topic once again veers around to the forthcoming bi-monthly monetary review. Will there be a rate cut; seems to be the overriding question. Many of the macros are, interestingly, supporting a rate cut. But the rate cut decision in August may hinge on factors outside of macros. Let me explain!
To begin, macros are favorable…
Inflation is well in control around the 5% mark. The biggest X-factor was the monsoon rainfall. While early July was a fairly dry spell, the deficit seems to have been made up in late July. At the end of the Monsoon, the overall deficit is unlikely to be higher than 6-7%. Secondly, Q1 results have been fairly disappointing and the pressure on operating profits is quite visible. This may again make the case for a rate cut. With major banks starting to pass on rate cuts to the end customer, the RBI cannot really say that transmission is not happening. So, what now? Continue reading
