RBI not ready to cut rates in H1 of 2024: Goldman Sachs

After a deficient monsoon in 2023, the food inflation has posed a formidable problem for the Indian economy. And as the economy is entering 2024, the expectation of rate cut by the Reserve Bank of India has gone up substantially but Goldman Sachs economists believe that India’s central bank is not ready to cut rates in the first half of 2024. 

“Our economists expect food inflation to remain high in the first half of 2024 and expect headline inflation at 5.4 per cent year-over-year during that period, well above the Reserve Bank of India’s target of 4.0 per cent. For the whole year, they expect headline inflation at 4.9 per cent, with core inflation at 4.3 per cent,” Goldman Sachs said a few days back. 

According to Goldman Sachs, there would be 25 basis points of policy rate cuts each in the third and fourth quarters of 2024. Additionally, they don’t expect the government to widen its fiscal deficit. “The growth in government capex seen in the past few years cannot be sustained going forward, in our view,” write Sengupta and Varma. A decline in public capital expenditure as a share of GDP is likely to accompany other measures aimed at containing the increase in government debt in coming years.