Do it yourself

The Consumer Price Index (CPI) inflation for the month of July came at 3.54%, the lowest in five years and below the RBI tolerance band of 4-6%. This has excited some market participants as their hopes of an earlier rate cut by RBI have been rekindled. I am however not sensing any imminent rate cut, for the following simple reasons. (i)       The headline inflation number is significantly impacted by a strong base effect, as the CPI inflation in the base period (July 2023) was 7.4%. Sequentially, the inflation has risen 1.42% MoM in July 2024 against 1.33% MoM rise in June 2024. As of now, there is no indication of a sustainable decline in inflation trajectory. (ii)      Core CPI inflation in July 2024 was 3.3% against 3.1% in the preceding two months. This is the first rise in core CPI after twelve months of consistent decline. (iii)    Food inflation remained sticky, rising 2.47% in July 2024 after a 2.69% rise in June 202...

  RBI monetary policy statement highlights ·          Status quo on policy rates and monetary policy stance (withdrawal of accommodation). ·          The MPC resolved to continue keeping a close vigil on the evolving inflation and growth outlook. It will take further monetary actions promptly and appropriately as required to keep inflation expectations firmly anchored and to bring down inflation to the target. The MPC also decided to remain focused on withdrawal of accommodation to ensure that inflation progressively aligns with the target, while supporting growth. ·          Domestic economic activity remains resilient in Q1:2023-24 as reflected in high frequency indicators. Purchasing managers’ indices (PMI) for manufacturing and services indicated sustained expansion, with the manufacturing PMI at a 31-month high in May and services PMI at a 13-year high ...