For a successful business manager, more is required than naive responses to current economic events like trade disputes, recessions, and fluctuations in currency rates. It necessitates an awareness of basic economic factors and trends at the national and global levels, as well as how they impact short- and long-term corporate performance.
What matters is how the macroeconomy, or the entire economy, behaves and how it affects business strategy and performance. Arguably, the most significant contextual issue that business manager will encounter in their future financial lives as consumers, workers, savers and investors is the state of the macroeconomy.
Thus, having a sophisticated understanding of how economies function is not just essential for a finance manager but from the perspective of an informed citizen.
For instance, a crucial talent for finance, analytics, international business, and strategy is the capacity to assess country information, particularly macroeconomic data such as Monetary policy of the country. It is essential to analyse the data and compare it with global economy outlook.
One such event that concerns every finance professional happened recently from Macro front on June 7th 2024, is RBI’s bi-monthly monetary policy, this post will discuss the same in detail.
RBI’s Bi-monthly Monetary Policy and its Implications
RBI Monetary Policy committee has decided to keep repo rate unchanged at 6.5 percentage amid robust growth momentum. RBI is also predicted the growth rate for Fy 25 be at 7.2 percentage. Consumer price index inflation for financial year 25 is expected to be 4.5 percentage. Long term target for inflation is 4% on a sustainable basis.
Inflation remained elevated because of food inflation as the vegetable prices are increasing due to summer season. However, there is deflationary trend in fuel prices primarily due to reduction in LPG prices in early March.
Industrial metal has registered a double-digit growth in the calendar year. Retail inflation is at 11 months low in April 2024 at 4.83 %. On a larger scale, monetary policy will remain disinflationary and remain focused on withdrawal of accommodation to tame inflation and policy transmission.
Growth Forecast of FY 25 (Quarterly and Yeary)
| June (%) |
1st Quarter | 7.3 |
2nd Quarter | 7.2 |
3rd Quarter | 7.3 |
4th Quarter | 7.2 |
FY 25 | 7.2 |
Inflation Estimates of FY 25 (Quarterly and Yeary)
| June (%) |
1st Quarter | 4.9 |
2nd Quarter | 3.8 |
3rd Quarter | 4.6 |
4th Quarter | 4.5 |
FY 25 | 4.5 |
Source: RBI press release of MPC June 2024
While the fixed interest loan will not get impacted, existing floating rate loan will have higher EMI which will go down only after any rate cut in future. It is essential to note that the new loan will have lower interest spread compared to existing loan. This will not just impact the borrower but borrowing cost for banks will also go higher because of higher deposit rate.
Governor Das has also emphasized the implementation guideline of Key Fact Statements (KFS). He noted that interest rate on small value loans is still higher in some institutions. RBI is closely monitoring the Unsecured retail loan. Previous rumour was that many of such money is coming into security market. So, RBI will act only based on further data if required.
RBI has also flagged concern about CD Ratio (A scenario in which the Credit growth is substantially higher than deposit growth). RBI has requested boards of such Banks to relook and re-strategize their business plans and need to modify their business plans, if required.
Globally, the situation is taking a different shape. While the major Central bank including Canada, Switzerland, Swidden, Hungary and Czech Republic has cut rate recently, India is still in wait and watch zone. European Central Bank has cut its benchmark rate to 3.75 from 4% which was record high rate. Interestingly, ECB moved ahead of Federal Reserve. The Bank of England is scheduled to meet on June 20 which needed to be watch closely for any rate cut. Bank of Japan has created history by increasing rate after below zero rate for long time by taking contrary stand.
During the press briefing, Governor Das has reiterated that domestic policy decision will be dependent upon domestic consideration. So even if Federal Reserve ease policy stance, RBI may take a contra view depending upon the inflationary situation. International crude prices or geopolitical conflict may affect the growth trajectory. Domestically, good monsoon is expected to maintain the growth rate.
To Sum Up
A successful business manager needs more than basic responses to economic events; they must understand national and global economic trends and their impacts on corporate performance. The macroeconomy significantly influences business strategy and financial decisions. For instance, RBI’s bi-monthly monetary policy kept the repo rate at 6.5% due to robust growth, predicting 7.2% growth for FY 25. Inflation is expected at 4.5%, influenced by rising vegetable prices and decreasing fuel costs.
Few institutes, like CVMU’s MBA in Finance, understand the industry’s need for finance managers to be acutely aware of the business environment. They meticulously design their courses to create MBA Finance professionals who meet this demand.
Author:
CS Kaival Dave,
Assistant Professor,
CVMU – MBA, CVM University
Area of Expertise: Capital Markets, Portfolio Management, Derivatives
