What can be expected from credit policy in December?

RBI data shows that on average, the weighted average term deposit of banks has come down by more than 100 bps on fresh deposits since Jan

- MADAN SABNAVIS

The next big announcement on the anvil is the credit policy. It comes at interesting times, as there is more clarity on the way forward for the economy, notwithstanding the uncertainty on the tariff issue. India is now close to signing a deal with the USA which will definitely add further momentum to the economy.

Monetary policy these days looks at both growth and inflation. Growth is poised to be around 7% this year or even higher. This is driven by the domestic factor where the countervailing measures invoked by the government in the form of GST rationalisation have helped to clear the deck. Consumption has picked up, and it is expected that investment, too, will increase with a lag, as higher consumption leads to better capacity utilisation and, hence, capital formation. If consumption is sustained going ahead, then there is reason for one to be optimistic about 7% plus growth in FY27 too. Hence, there is no concern on the growth front.

Inflation has been surprisingly on the downside, and it does look like it will average less than the RBI forecast of 2.6% and could go to 2.4-2.5%. Food prices are benign, and the expected good rabi crop will supplement the kharif crop and keep prices subdued. There is, of course, the base effect, which has kept food inflation in the negative territory. The reduction in GST rates across a series of manufactured goods would play out in the coming months and ensure that core inflation too moderates to levels of less than 4%. Therefore, the number is more of academic interest when it comes to policy.