Economic Outlook

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Nov 30, 2023

QuantEco Research || India Macrobook Nov-23

Core Views:  We have revised up our forecast for FY24 GDP growth to 6.2% from 6.0% earlier. We maintain our FY24 CPI inflation view of 5.5%. Going forward, CPI inflation is likely to moderate towards 4.5-5.4% range in H1 FY25. Lingering inflation risks in the near-term and ‘higher for longer’ US rates is likely to prompt MPC to remain on an extended pause through H1 FY25. Meanwhile, the RBI is signalling its ‘steady for longer’ bias by curbing core liquidity surplus, sounding hawkish, and selectively tightening credit conditions by using macro-prudential tools. This is likely to be followed by 50-75 bps rate cuts in H2 FY25. We maintain our 10Y g-sec yield call of 7.00% by Mar-24. Going forward, there is a likelihood of further moderation towards 6.50-6.75% by Mar-25. We expect Fed to lead the rate cutting cycle from Q2 2024 – this is likely to weigh on the USD as clarity on the timing of Fed pivot emerges in the coming quarters. We expect rupee to see a moderate backloaded appreciation, with USDINR likely to move towards 82.5 levels by Mar-24. Going forward, rupee could show a mild weakness towards 84.5-85.0 levels by Mar-25.