Upasna Bhardwaj, chief economist at Kotak Mahindra Bank, has a negative prognosis for the year’s GDP numbers and predicts a change in the rupee toward the 87–87.50 range vs the dollar. With uncertainty for the following year, Bhardwaj projects it to be 6.1% for FY25.
The bank anticipates that the figure will be less than 6.5%. They think a rate-cut cycle may begin in February due to the substantial downside risks to the government’s and RBI’s GDP projections.
Nonetheless, it is necessary to keep an eye on the global situation for any possible adverse effects. They predict a 50–75 basis point overall rate drop in CY25, most likely starting in February.
While the food price index stays stable at about 9.1% to 9.2%, the CPI is expected to continue to decline towards 5.3%, keeping inflation on the upper side. Cereals, pulses, oils, and seeds, on the other hand, have begun to decline significantly, which has lowered prices and affected headline food inflation.
For the first time ever, the rupee has dropped below the 86 to dollar barrier, and the bank predicts that this movement would further pressure the inflation figure in the future.
The strength of the dollar overall, capital flight, and rising crude oil costs are the main drivers of the rupee. Additionally, the bank observes that the RBI is not monitoring levels, giving the rupee greater freedom to fluctuate.
Over the past few days, the price of crude oil has increased drastically, and the rupee is under further pressure due to new sanctions imposed on Russia. Going forward, this would hurt the rupee, and if the RBI permits greater movement, the dollar-rupee should rise. Over the next few months, the bank anticipates a range of 87-87.50, with a range of 86.5-87.5 deviating from the current range.
Although there are upside risks to the inflation predictions, food inflation has decreased. Higher oil prices and the rupee’s effect on domestic inflation scenarios are projected to cause a 20–25 basis point movement in the band or range for the current average inflation of 4.2%.
In terms of macro data, there are hopes of easing inflation, but the IIP number is at a six-month high. The bank is expecting a rate cut due to the volatility of the IIP and the potential for a payback or improvement in Q3 and Q4. Overall, the bank remains fairly bearish on the full year GDP numbers, with a 6.1% estimate for FY25 and uncertainties in next year.
