September 2020 – The RBI is expected to hold the repo rate at the September 29 meeting, according to a unanimous vote by 17 economists on Finder’s RBI repo rate forecast report.
However two panellists – Manappuram Finance chief economist, Jayesh Kumar, and Edelweiss Financial Services economist, Ankita Pathak – think the Bank should cut the rate this month by 25-50 bps.
Regardless of when it happens, 100% of panellists (16/16) say the next rate movement will be down, with several panellists suggesting there’s room for monetary easing in late 2020 or early 2021 provided inflationary pressures ease off.
Bandhan Bank chief economist, Siddhartha Sanyal, says they’re not ruling out monetary easing over the next 3-6 months.
“… we expect the CPI prints to soften during the second half of the current financial year (ending March 2021). Thus, on balance, we expect the MPC to stay on hold in the current meeting even though we do not rule out more monetary easing over the next 3-6 months.”
YES Bank economist, Radhika Piplani, thinks the MPC has room to cut the rate by up to 50 basis points in December 2020 – February 2021.
“While caution is warranted to uphold central bank’s inflation-fighting credibility, the need for continued support to grow during these unprecedented times would also reassert itself as the impact of COVID continues to play out both globally and domestically. Accordingly, we expect up to 50 bps of monetary easing to be delivered in Dec-20/Feb-21 when inflationary pressures are tamed,” she said.
GDP growth forecasts
GDP growth isn’t expected to reach positive territory until the first half of next year, according to the majority of Finder’s panel (65%).
Roha Asset Managers economist, Gauri Sharma, is part of the majority forecasting an uptick by the first half of 2021 but notes it will take sometime before we reach normality.
“I believe the first half of 2021 has been largely affected by the lockdown. Even if the lockdown is now lifted, it will take some time to get back to work. This will be even tough for the MSME segment which contributes around 38-40% towards the GDP of the country. Thus I don’t expect any positive growth in the second half of 2020 as well,” she said.
17% say GDP won’t recover until the latter half of next year while 12% say 2022 and just one panellist, the Wealth Dialogues independent researcher and writer, Mridul Mehndiratta, says it’ll be 2023 before we see positive growth.
“… with the pay cuts, job losses and low discretionary spending at least for the current fiscal year, gloomy sentiment can hinder the full-blown economic recovery over the next year.
“However, my expectation is that as people get used to the new normal, the hope for [a] vaccine in the next 6 months or so, we might see businesses going full throttle, accompanied by people overcoming their apprehensions to step out, we can start to witness upward trend by 2023,” she said.
Experts weigh in on government stimulus
Over half of the panel (65%) say the government is not doing enough to support the economy throughout the COVID-19 pandemic. Just under a quarter (23%) say they aren’t sure while 12% (2/17) think the government is pulling its weight in economic recovery efforts.
IDFC FIRST Bank chief economist, Indranil Pan, notes there is no real stimulus to the economy and thinks the government could do more.
“The government has been doing its bit for lives and livelihood – especially at the lowest end of the income pyramid. But, there is no real stimulus to the economy and most of the fiscal slippage is likely to arise due to the erosion in revenues.
“I would like to see the government addressing both the consumption as also the supply side: a) tax reductions at the lowest income brackets/tax slabs b) reduction in GST with a sunset clause for high-value items to kickstart consumption c) identify shovel-ready projects and push the accelerator hard in these projects – this will help create jobs and also create an environment for crowding-in of private investments,” he said.
Kotak Mahindra Bank senior vice president, Upasna Bhardwaj, called for more government spending.
“I think a greater focus on demand-side stimulus and increase in infrastructure spending could boost medium-term prospects for durable income growth,” she said.
Meanwhile, CARE Ratings Ltd. economist, Rucha Randive, is one of just two panellists who think the government is doing enough to support the economy.
“The government and the RBI have already announced a slew of measures to support the pandemic hit economy. However, more fiscal and monetary support is called for given the moderate pace of economic recovery and rising infection cases in the country,” she said.
You can find the full report with additional commentary here: https://www.finder.com/in/rbi-repo-rate-forecast
