Real interest rates at near 4-year high, to temper growth in the coming months

despite of The Reserve Bank of India (RBI) pauses interest rate hikes In the last two monetary policies, the impact of previous interest rate increases on growth will be more prominent in FY24, according to the crisis May Financial Conditions Index Report.

The real repo rate, or the modified repo rate Consumer price index inflationrose to a nearly four-year high of 2.2 percent in May – the highest level since August 2019. With growth slowing as a result, the central bank is expected to maintain the status quo in August and start cutting interest rates in the fourth quarter of the fiscal year. 24.

While a temporary pause in interest rate hikes bodes well for financial markets, higher bank lending rates may lead to a tightening of financial conditions for some sectors of the economy. Rates will rise further in real terms as inflation moderates, Cresel said, adding that rates at current levels are expected to moderate demand in the economy in the coming months.

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MCLR benchmark rates, mortgages and auto loans all topped the five-year average before the pandemic in May. Bank credit growth eased to 15.4 percent year on year from 15.9 percent in April.

While that growth remains the strongest in a decade, some subcomponents — such as personal loans, home loans and auto loans — are slowing further, reflecting some of the impact of higher lending rates.

Overall, however, financial conditions in India remain stable with CRISIL’s FCI unchanged at 0.3 in May – above the average of negative 0.1 seen in the March quarter.

Also read: Wholesale inflation fell to a 90-month low of -3.48% in May

global fluctuations

Despite global vicissitudes, FPI streams Both debt and equity markets rose to a nine-month high in May, boosting returns in these sectors. Net foreign direct investment inflows increased to $5.9 billion in May, the highest level since September 2022, from $1.7 billion in April, also supported by the sharp drop in crude oil prices. Of this amount, $5.3 billion of inflows were in equity while there was $0.4 billion in debt.

“While the risk of choppy and volatile global financial conditions persists, India’s vulnerability to these shocks is likely to be lower this year. India’s main external liability – the current account deficit – is likely to be reduced on the back of lower crude oil prices. This, along with cash reserves The RBI’s adequate foreign exchange and good growth prospects for the country should mitigate the impact of the global fallout on aggregate macros.