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Goldman Sachs (Photo: Reuters)
Goldman Sachs revised upwards its forecast for India’s gross domestic product (GDP) growth for calendar year 2024 (CY24) by 10 basis points (bps) to 6.7 per cent, and expects the Reserve Bank of India (RBI) to cut interest rates in the fourth quarter of the current calendar year (Q4-CY24) / third quarter of the current fiscal year 2024-25 (Q3-FY25).
India’s, core inflation averaged 3.4 per cent year-on-year (YoY) in January till April 2024, which, analysts at Goldman Sachs said, is expected to bottom out in the second quarter Q2-CY24 and rise towards the 4 – 4.5 per cent mark in the second half of CY24. This belief, they said, was mainly driven by their view of an uptick in core goods inflation due to the lagged impact of manufacturing cost increases.
The RBI, their analysts believe, may want to see progress of the monsoons and sowing of the summer (Kharif) crop to assess the food inflation trajectory in the second half of CY24, before pivoting towards monetary policy easing.
Taking into account the above developments, Goldman Sachs has pushed back their expectation of a cut in interest rate by the RBI by one quarter to Q4-CY24 (vs. Q3 earlier), with the first cut most likely in the December 2024 meeting.
“We continue to expect a shallow easing cycle of total 50 basis points (bps) rate cuts from the RBI, with 25bps rate cuts each in Q4-CY24 and Q1-CY25,” Tilton, Sengupta and Varma wrote.
The US Federal Reserve
“Strong May PMIs, lower jobless claims and hawkish commentary by Fed officials, in particular Governor Waller raised the bar higher for a rate cut in July,” Goldman Sachs’ analysts said.
Meanwhile, the minutes of the recent FOMC minutes showed that the US central bank was willing to hike rates, if necessary, This, analysts said, was in sharp contrast to the Fed chair Jerome Powell’s remarks that the committee was not thinking about hiking rates.
The US economy, according to Philip Marey, senior US strategist at Rabobank International, is heading towards stagflation, from the current situation of persistent inflation and GDP growth slowdown.
“Anyway, the window of opportunity for rate cuts is narrow. If Trump returns as US President – which is our current baseline scenario based on the opinion polls – we are likely to see a new inflationary impulse from a universal tariff in 2025. This should stop the Fed’s cutting cycle in its tracks,” he said.
First Published: May 27 2024 | 11:38 AM IST
