RBI To Remain Cautious On Growth Trends Even As MPC Status Quo Stays, Says UBS' Jain

The Reserve Bank of India is likely to maintain the status quo on the key lending rates in the October monetary policy review meeting but with a cautious approach over softening growth trends, Tanvee Gupta Jain, chief India economist at UBS, said on Monday.

The RBI’s MPC meeting is scheduled from Oct. 7 to Oct. 9, with key announcements expected on the final day. 

This is the first MPC meeting after the appointment of three new external members, Ram Singh, Sougata Bhattacharya, and Nagesh Kumar. 

The central bank has maintained the status quo at 6.5% lending rates and a withdrawal of accommodation stance for a while now.

Jain told NDTV Profit, “Largely, if we look at the rates as well as the stance, we are expecting a status quo. We are not expecting RBI, at this point, to change the policy stance, which is right now the withdrawal of accommodation.”

She pointed out that the RBI's GDP growth forecast of 7.2% exceeds the country's current growth rate of 6.8%.

“In the Economic Survey too, the government had mentioned that growth would be near 6.5%. Clearly, RBI is slightly optimistic on the growth front,” Jain said.

The economist also revealed that the UBS India Composite Economic Indicator, which is a compilation of 15 high-frequency data, shows that growth momentum has softened specifically from August onwards.

“The bigger worry I have is that the government spending on capex is also showing a downfall. From an RBI MPC perspective, it will be a status quo with a bit of caution, both on growth and inflation,” she said.

Jain was sceptical of the growth scenario in India, which she said was showing a softening trend even in the September quarter. 

The UBS economist said that after living in a goldilocks situation since FY22 with macro risks being manageable, the June quarter of FY25 showed a slowdown due to factors like elections and heatwaves.

“The expectation was that September would show an uptick but the bulk of high-frequency data shows there is nothing as such and there is softening,” she said.

While Jain did not see any uptick in the growth trend and warned of a softening momentum, she was hopeful for the December quarter.

“With the festive season falling in the December quarter, the expectation is that this quarter will be better than the September quarter,” she said.