LIQUIDITY MOST EFFECTIVE FOR RATE TRANSMISSION, SOOTHING BOND YIELDS

The Monetary Policy Committee's decision on the repo rate later this week will be a complicated one. Inflation has receded much faster than the central bank's forecasts. The October Consumer Price Index inflation print, at 0.25% year on year, has come at a series low.

- SIDDHARTHA SANYAL

The Reserve Bank of India’s forecast for average CPI inflation for 2025-26 has been revised lower by 160 basis points in just eight months from 4.2% in February to 2.6% in October. Another large downward revision later this week looks imminent, potentially taking the forecast closer to the central bank's lower tolerance band of 2%.

On the other hand, GDP growth continued to spring large upside surprises to average 8% in the first half of 2025-26 and looked set to grow well over 7% in the full year. However, the latest nominal GDP growth of 8.7% is one of the weakest prints in almost half a decade.

The earnings of several companies surprised on the higher side in Q2. Consumption has picked up, aided by tax rebates and festives, but its trend remains mixed, with recent housing and automobile sales indicating that sales of premium products are doing the heavy lifting.