{"id":399299,"date":"2024-12-16T22:23:56","date_gmt":"2024-12-16T16:53:56","guid":{"rendered":"https:\/\/zerodha.com\/z-connect\/?p=399299"},"modified":"2024-12-20T18:56:49","modified_gmt":"2024-12-20T13:26:49","slug":"its-the-economy-stupid-rbi-loves-taking-bold-moves","status":"publish","type":"post","link":"https:\/\/zerodha.com\/z-connect\/subtext\/its-the-economy-stupid-rbi-loves-taking-bold-moves","title":{"rendered":"It&#8217;s the economy, stupid! RBI loves taking bold moves"},"content":{"rendered":"<p><em>We love IndiaDataHub\u2019s weekly newsletter, \u2018<\/em><a href=\"https:\/\/indiadatahub.substack.com\/\"><em>This Week in Data<\/em><\/a><em>\u2019, which neatly wraps up all major macro data stories for the week. We love it so much, in fact, that we\u2019ve taken it upon ourselves to create a simple, digestible version of their newsletter for those of you that don\u2019t like econ-speak. Think of us as a cover band, reproducing their ideas in our own style. Attribute all insights, here, to IndiaDataHub. All mistakes, of course, are our own.<\/em><\/p>\n<hr \/>\n<p>Prefer watching over reading? Here\u2019s the video for you!<\/p>\n<p><a href=\"<iframe width=\"100%\" src=\"https:\/\/www.youtube.com\/embed\/zXQBKzRU0Gg\" frameborder=\"0\" allowfullscreen><\/iframe><\/a><\/p>\n<h3><b>Is the RBI Playing it Too Cool?<\/b><\/h3>\n<p><span style=\"font-weight: 400\">In the first week of December, the Monetary Policy Committee (MPC) did exactly what everyone expected: <\/span><a href=\"https:\/\/www.rbi.org.in\/Scripts\/BS_PressReleaseDisplay.aspx?prid=59244\"><span style=\"font-weight: 400\">absolutely nothing<\/span><\/a><span style=\"font-weight: 400\"> with interest rates. The repo rate still sits at 6.5%, which makes sense. Inflation is tricky, growth is shaky, and the RBI doesn\u2019t want to rock the boat just yet.<\/span><\/p>\n<p><span style=\"font-weight: 400\">But they did not completely go silent. They cut the Cash Reserve Ratio (CRR) by 50 basis points (that\u2019s 0.5% for the non-finance folks out there). This move could quietly add over $13 billion of cash into the banking system.<\/span><\/p>\n<p><span style=\"font-weight: 400\">How does that work? CRR is the percentage of their deposits that banks are required to park with the RBI. It\u2019s like a safety cushion\u2014cash banks can fall back on during tough times. By lowering the CRR, banks now have to keep less money locked up with the RBI and can instead use that extra cash to lend or invest. Think of it as giving banks a little extra breathing room to boost credit flow.<\/span><\/p>\n<p><a href=\"https:\/\/zerodha.com\/z-connect\/wp-content\/uploads\/2024\/12\/CRR.png\"><img loading=\"lazy\" decoding=\"async\" class=\"size-large wp-image-399315 aligncenter\" src=\"https:\/\/zerodha.com\/z-connect\/wp-content\/uploads\/2024\/12\/CRR-1024x675.png\" alt=\"\" width=\"1024\" height=\"675\" srcset=\"https:\/\/zerodha.com\/z-connect\/wp-content\/uploads\/2024\/12\/CRR-1024x675.png 1024w, https:\/\/zerodha.com\/z-connect\/wp-content\/uploads\/2024\/12\/CRR-300x198.png 300w, https:\/\/zerodha.com\/z-connect\/wp-content\/uploads\/2024\/12\/CRR-768x506.png 768w, https:\/\/zerodha.com\/z-connect\/wp-content\/uploads\/2024\/12\/CRR-1536x1013.png 1536w, https:\/\/zerodha.com\/z-connect\/wp-content\/uploads\/2024\/12\/CRR-2048x1350.png 2048w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><\/a><\/p>\n<p><span style=\"font-weight: 400\">Let\u2019s quickly rewind:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">In the pandemic\u2019s early days, the RBI had slashed the CRR to 3% from 4% to keep banks flush with cash when the world was falling apart.<\/span><\/li>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">Once the worst was behind us, they hiked it back to 4.5% to soak up all that excess liquidity.<\/span><\/li>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">And now? They\u2019ve dialed it back to 4%, taking us right back to pre-pandemic times.<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400\">So, why did the RBI do this?<\/span><\/p>\n<p><span style=\"font-weight: 400\">Because there has been a liquidity crunch lately, and one of the reasons is\u2014ironically\u2014the RBI itself. Over the last few weeks, they\u2019ve been dipping into our <\/span><b>foreign exchange reserves<\/b><span style=\"font-weight: 400\"> to <\/span><a href=\"https:\/\/zerodha.com\/z-connect\/subtext\/its-the-economy-stupid-fx-reserves-are-falling-but-why\"><span style=\"font-weight: 400\">support<\/span><\/a><span style=\"font-weight: 400\"> the rupee, which has been under pressure thanks to foreign investors pulling out of Indian markets. This drains rupees out of the system, making liquidity tighter.<\/span><\/p>\n<p><span style=\"font-weight: 400\">But that\u2019s not the whole story. <\/span><b>Falling small savings inflows<\/b><span style=\"font-weight: 400\"> are making things worse.<\/span><\/p>\n<p><span style=\"font-weight: 400\">Small savings schemes\u2014like the Public Provident Fund (PPF), Sukanya Samriddhi Yojana, and others\u2014are a key funding source for the government\u2019s fiscal deficit. This year, however, inflows have been falling fast. In October alone, net inflows dropped 25%, and for the first 7 months of FY25, they\u2019re already down by 30%. If this continues, small savings inflows could fall \u20b993,000 crore short of the budget estimate.<\/span><\/p>\n<p><a href=\"https:\/\/zerodha.com\/z-connect\/wp-content\/uploads\/2024\/12\/Net-Flow-Small-Savings.png\"><img loading=\"lazy\" decoding=\"async\" class=\"size-large wp-image-399307 aligncenter\" src=\"https:\/\/zerodha.com\/z-connect\/wp-content\/uploads\/2024\/12\/Net-Flow-Small-Savings-1024x680.png\" alt=\"\" width=\"1024\" height=\"680\" srcset=\"https:\/\/zerodha.com\/z-connect\/wp-content\/uploads\/2024\/12\/Net-Flow-Small-Savings-1024x680.png 1024w, https:\/\/zerodha.com\/z-connect\/wp-content\/uploads\/2024\/12\/Net-Flow-Small-Savings-300x199.png 300w, https:\/\/zerodha.com\/z-connect\/wp-content\/uploads\/2024\/12\/Net-Flow-Small-Savings-768x510.png 768w, https:\/\/zerodha.com\/z-connect\/wp-content\/uploads\/2024\/12\/Net-Flow-Small-Savings-1536x1020.png 1536w, https:\/\/zerodha.com\/z-connect\/wp-content\/uploads\/2024\/12\/Net-Flow-Small-Savings-2048x1360.png 2048w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><\/a><\/p>\n<p><span style=\"font-weight: 400\">What does this mean? The government will have to borrow more from the market, and that\u2019s where things get tricky. Higher government borrowings will crowd out liquidity as they\u2019ll be competing with companies and retail borrowers for funds. And when the government takes a bigger slice of the pie, there\u2019s less credit left for everyone else.<\/span><\/p>\n<p><span style=\"font-weight: 400\">In fact, if you look at the data, the money market liquidity has already flipped. What was a large surplus since June has now barely balanced out. So, the CRR cut feels like the RBI\u2019s way of balancing the scales\u2014easing liquidity without causing all the problems by slashing rates.<\/span><\/p>\n<p><a href=\"https:\/\/zerodha.com\/z-connect\/wp-content\/uploads\/2024\/12\/Outstanding-Liquidity.png\"><img loading=\"lazy\" decoding=\"async\" class=\"size-large wp-image-399306 aligncenter\" src=\"https:\/\/zerodha.com\/z-connect\/wp-content\/uploads\/2024\/12\/Outstanding-Liquidity-1024x680.png\" alt=\"\" width=\"1024\" height=\"680\" srcset=\"https:\/\/zerodha.com\/z-connect\/wp-content\/uploads\/2024\/12\/Outstanding-Liquidity-1024x680.png 1024w, https:\/\/zerodha.com\/z-connect\/wp-content\/uploads\/2024\/12\/Outstanding-Liquidity-300x199.png 300w, https:\/\/zerodha.com\/z-connect\/wp-content\/uploads\/2024\/12\/Outstanding-Liquidity-768x510.png 768w, https:\/\/zerodha.com\/z-connect\/wp-content\/uploads\/2024\/12\/Outstanding-Liquidity-1536x1020.png 1536w, https:\/\/zerodha.com\/z-connect\/wp-content\/uploads\/2024\/12\/Outstanding-Liquidity-2048x1360.png 2048w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><\/a><\/p>\n<p><span style=\"font-weight: 400\">Now, despite all this, the biggest takeaway from the meeting is how relaxed the RBI still is about growth. Yes, they trimmed their FY25 GDP forecast from 7.2% to 6.6%, but most of the slowdown came in the first half of the year, where growth slipped to a disappointing 5.4%.<\/span><\/p>\n<p><a href=\"https:\/\/zerodha.com\/z-connect\/wp-content\/uploads\/2024\/12\/Growth-Estimates.png\"><img loading=\"lazy\" decoding=\"async\" class=\"size-large wp-image-399318 aligncenter\" src=\"https:\/\/zerodha.com\/z-connect\/wp-content\/uploads\/2024\/12\/Growth-Estimates-1024x674.png\" alt=\"\" width=\"1024\" height=\"674\" srcset=\"https:\/\/zerodha.com\/z-connect\/wp-content\/uploads\/2024\/12\/Growth-Estimates-1024x674.png 1024w, https:\/\/zerodha.com\/z-connect\/wp-content\/uploads\/2024\/12\/Growth-Estimates-300x197.png 300w, https:\/\/zerodha.com\/z-connect\/wp-content\/uploads\/2024\/12\/Growth-Estimates-768x505.png 768w, https:\/\/zerodha.com\/z-connect\/wp-content\/uploads\/2024\/12\/Growth-Estimates-1536x1011.png 1536w, https:\/\/zerodha.com\/z-connect\/wp-content\/uploads\/2024\/12\/Growth-Estimates-2048x1348.png 2048w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><\/a><\/p>\n<p><span style=\"font-weight: 400\">Yet, the RBI remains optimistic. They\u2019re betting on a second-half recovery, expecting growth to bounce back to 7% YoY. Basically, they\u2019re saying: <\/span><i><span style=\"font-weight: 400\">\u201cRelax, the dip was just a blip.\u201d<\/span><\/i><\/p>\n<p><span style=\"font-weight: 400\">In fact, they\u2019re so confident that they stuck to their <\/span><b>neutral stance<\/b><span style=\"font-weight: 400\">\u2014no hints of rate cuts or hikes.<\/span><\/p>\n<p><span style=\"font-weight: 400\">But here\u2019s the thing\u2014not everyone on the MPC is on the same page. Two external members were against this stance, signaling some cracks in the consensus. If just one more member starts worrying about growth, a rate cut could come sooner than expected.<\/span><\/p>\n<p><span style=\"font-weight: 400\">And with Shaktikanta Das stepping down as RBI Governor and Sanjay Malhotra taking over, this becomes even more likely\u2014though Malhotra insists he\u2019s staying <\/span><a href=\"https:\/\/www.thehindu.com\/business\/Economy\/sanjay-malhotra-the-new-boss-at-mint-street\/article68986213.ece#:~:text=On%20his%20Day%20One%20in%20office%2C%20Governor%20Malhotra%20revealed%20no%20bias%20towards%20either%20growth%20or%20inflation%2C%20saying%20he%20does%20not%20like%20to%20start%20playing%20his%20shots%20from%20the%20first%20ball%20of%20a%20match.\"><span style=\"font-weight: 400\">neutral<\/span><\/a><span style=\"font-weight: 400\"> for now.<\/span><\/p>\n<p><span style=\"font-weight: 400\">So what\u2019s next?<\/span><\/p>\n<p><span style=\"font-weight: 400\">It all comes down to the growth data over the next couple of months. If the recovery doesn\u2019t look as solid as the RBI is hoping, they might have no choice but to loosen the purse strings further. Until then, we\u2019ve got the CRR cut to tide us over.<\/span><\/p>\n<hr \/>\n<h3><b>Is Growth Back on the Menu?<\/b><\/h3>\n<p><span style=\"font-weight: 400\">We ended the last story saying growth is taking the centre stage of all our policy decisions. Now here we are, staring at the GDP numbers for the September quarter, and there\u2019s no sugarcoating this one: growth slowed sharply to 5.4%, down from just under 7% in June and a solid 8% in the same quarter last year. To put it bluntly, this is the slowest GDP growth we\u2019ve seen since the December quarter of 2022.<\/span><\/p>\n<p><a href=\"https:\/\/zerodha.com\/z-connect\/wp-content\/uploads\/2024\/12\/GDP-Nov.png\"><img loading=\"lazy\" decoding=\"async\" class=\"size-large wp-image-399310 aligncenter\" src=\"https:\/\/zerodha.com\/z-connect\/wp-content\/uploads\/2024\/12\/GDP-Nov-1024x679.png\" alt=\"\" width=\"1024\" height=\"679\" srcset=\"https:\/\/zerodha.com\/z-connect\/wp-content\/uploads\/2024\/12\/GDP-Nov-1024x679.png 1024w, https:\/\/zerodha.com\/z-connect\/wp-content\/uploads\/2024\/12\/GDP-Nov-300x199.png 300w, https:\/\/zerodha.com\/z-connect\/wp-content\/uploads\/2024\/12\/GDP-Nov-768x509.png 768w, https:\/\/zerodha.com\/z-connect\/wp-content\/uploads\/2024\/12\/GDP-Nov-1536x1019.png 1536w, https:\/\/zerodha.com\/z-connect\/wp-content\/uploads\/2024\/12\/GDP-Nov-2048x1358.png 2048w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><\/a><\/p>\n<p><span style=\"font-weight: 400\">But does this mean the economy is wobbling again, or was the slowdown just a temporary blip as RBI believes? That\u2019s the real question\u2014and the answer, as always, lies in the data.<\/span><\/p>\n<p><span style=\"font-weight: 400\">And the data was already hinting at what is about to come. Let\u2019s face it\u2014quarterly GDP numbers aren\u2019t all that surprising. It\u2019s like getting the bill at the end of your restaurant meal. You knew what you were ordering, how much it cost, and the bill just confirms it. Most of the data that feeds into GDP\u2014like disappointing corporate earnings, muted consumption trends, and falling tax receipts\u2014was already signaling a slowdown.<\/span><\/p>\n<p><span style=\"font-weight: 400\">Let us take a closer look, starting with government spending.<\/span><\/p>\n<p><span style=\"font-weight: 400\">October offered an interesting mix of data. On one hand, government spending shot up by over 15% YoY during the August-October period. But all the growth came from <\/span><b>revenue expenditure<\/b><span style=\"font-weight: 400\"> (day-to-day expenses like salaries and subsidies). <\/span><b>Capital expenditure<\/b><span style=\"font-weight: 400\">\u2014which drives long-term growth\u2014actually fell by 10% YoY, marking the third consecutive monthly decline. Not a healthy sign to see capex falling behind this much.<\/span><\/p>\n<p><a href=\"https:\/\/zerodha.com\/z-connect\/wp-content\/uploads\/2024\/12\/Govt-Exp.png\"><img loading=\"lazy\" decoding=\"async\" class=\"size-large wp-image-399309 aligncenter\" src=\"https:\/\/zerodha.com\/z-connect\/wp-content\/uploads\/2024\/12\/Govt-Exp-1024x680.png\" alt=\"\" width=\"1024\" height=\"680\" srcset=\"https:\/\/zerodha.com\/z-connect\/wp-content\/uploads\/2024\/12\/Govt-Exp-1024x680.png 1024w, https:\/\/zerodha.com\/z-connect\/wp-content\/uploads\/2024\/12\/Govt-Exp-300x199.png 300w, https:\/\/zerodha.com\/z-connect\/wp-content\/uploads\/2024\/12\/Govt-Exp-768x510.png 768w, https:\/\/zerodha.com\/z-connect\/wp-content\/uploads\/2024\/12\/Govt-Exp-1536x1020.png 1536w, https:\/\/zerodha.com\/z-connect\/wp-content\/uploads\/2024\/12\/Govt-Exp-2048x1360.png 2048w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><\/a><\/p>\n<p><span style=\"font-weight: 400\">Even worse, on the income side the tax revenue numbers are looking weak. Gross tax revenues grew by just 2% YoY while corporate and personal tax collections both declined in October. In fact, over the past 3 months, tax collections have barely grown at 1% YoY.<\/span><\/p>\n<p><a href=\"https:\/\/zerodha.com\/z-connect\/wp-content\/uploads\/2024\/12\/Gross-Tax-Revenue.png\"><img loading=\"lazy\" decoding=\"async\" class=\"size-large wp-image-399308 aligncenter\" src=\"https:\/\/zerodha.com\/z-connect\/wp-content\/uploads\/2024\/12\/Gross-Tax-Revenue-1024x672.png\" alt=\"\" width=\"1024\" height=\"672\" srcset=\"https:\/\/zerodha.com\/z-connect\/wp-content\/uploads\/2024\/12\/Gross-Tax-Revenue-1024x672.png 1024w, https:\/\/zerodha.com\/z-connect\/wp-content\/uploads\/2024\/12\/Gross-Tax-Revenue-300x197.png 300w, https:\/\/zerodha.com\/z-connect\/wp-content\/uploads\/2024\/12\/Gross-Tax-Revenue-768x504.png 768w, https:\/\/zerodha.com\/z-connect\/wp-content\/uploads\/2024\/12\/Gross-Tax-Revenue-1536x1008.png 1536w, https:\/\/zerodha.com\/z-connect\/wp-content\/uploads\/2024\/12\/Gross-Tax-Revenue-2048x1344.png 2048w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><\/a><\/p>\n<p><span style=\"font-weight: 400\">If this trend continues, the government will likely miss its full-year revenue targets and may have to cut down on spending\u2014something we really can\u2019t afford when growth is already slowing.<\/span><\/p>\n<p><span style=\"font-weight: 400\">So, while the government budget isn\u2019t doing much to support falling GDP, the high-frequency consumption data may offer some much-needed relief. Let us now look at them.<\/span><\/p>\n<p><span style=\"font-weight: 400\"><strong>[1] Automobiles<\/strong>\u00a0<br \/>\n<\/span><span style=\"font-weight: 400\">Consumption in the auto sector is showing signs of a turnaround. Yes, the timing of the festive season shifted some demand, but strip out the noise, and the numbers are solid:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400\"><i><span style=\"font-weight: 400\">Cars<\/span><\/i><span style=\"font-weight: 400\"> and <\/span><i><span style=\"font-weight: 400\">SUVs<\/span><\/i><span style=\"font-weight: 400\"> retail sales grew 11% YoY over the last 2 months, a sharp recovery from the 2% decline in September.<\/span><\/li>\n<li style=\"font-weight: 400\"><i><span style=\"font-weight: 400\">Two-wheelers<\/span><\/i><span style=\"font-weight: 400\"> sales rebounded to 24% YoY growth, up from a modest 5% in the previous quarter.<\/span><\/li>\n<li style=\"font-weight: 400\"><i><span style=\"font-weight: 400\">Tractors<\/span><\/i><span style=\"font-weight: 400\"> sales grew 15% YoY after falling 7% in Q2. This shows that the rural pulse is strong here<\/span><\/li>\n<\/ul>\n<p><a href=\"https:\/\/zerodha.com\/z-connect\/wp-content\/uploads\/2024\/12\/Auto-Sales-2.png\"><img loading=\"lazy\" decoding=\"async\" class=\"size-large wp-image-399314 aligncenter\" src=\"https:\/\/zerodha.com\/z-connect\/wp-content\/uploads\/2024\/12\/Auto-Sales-2-1024x674.png\" alt=\"\" width=\"1024\" height=\"674\" srcset=\"https:\/\/zerodha.com\/z-connect\/wp-content\/uploads\/2024\/12\/Auto-Sales-2-1024x674.png 1024w, https:\/\/zerodha.com\/z-connect\/wp-content\/uploads\/2024\/12\/Auto-Sales-2-300x198.png 300w, https:\/\/zerodha.com\/z-connect\/wp-content\/uploads\/2024\/12\/Auto-Sales-2-768x506.png 768w, https:\/\/zerodha.com\/z-connect\/wp-content\/uploads\/2024\/12\/Auto-Sales-2-1536x1012.png 1536w, https:\/\/zerodha.com\/z-connect\/wp-content\/uploads\/2024\/12\/Auto-Sales-2-2048x1349.png 2048w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><\/a><\/p>\n<p><span style=\"font-weight: 400\"><strong>[2] Power Generation<\/strong><br \/>\nPower generation growth picked up slightly, growing by ~3% YoY during October-November, better than the 1.4% growth in the September quarter. It\u2019s not a boom, but it\u2019s not stagnation either.<\/span><\/p>\n<p><strong>[3] Cargo Throughput<br \/>\n<\/strong><span style=\"font-weight: 400\">Not everything is rosy, though. Cargo traffic at major ports continues to struggle. November marked the second consecutive month of decline, the first such drop since June last year.<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">Most of the weakness came from lower throughput of coal and iron ore.<\/span><\/li>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">Even container traffic barely grew, rising by just 1% YoY over the past 2 months.<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400\">That\u2019s a sign of sluggish trade and industrial activity\u2014something that can\u2019t be ignored.<\/span><\/p>\n<p><a href=\"https:\/\/zerodha.com\/z-connect\/wp-content\/uploads\/2024\/12\/Power-Generation.png\"><img loading=\"lazy\" decoding=\"async\" class=\"size-large wp-image-399313 aligncenter\" src=\"https:\/\/zerodha.com\/z-connect\/wp-content\/uploads\/2024\/12\/Power-Generation-1024x677.png\" alt=\"\" width=\"1024\" height=\"677\" srcset=\"https:\/\/zerodha.com\/z-connect\/wp-content\/uploads\/2024\/12\/Power-Generation-1024x677.png 1024w, https:\/\/zerodha.com\/z-connect\/wp-content\/uploads\/2024\/12\/Power-Generation-300x198.png 300w, https:\/\/zerodha.com\/z-connect\/wp-content\/uploads\/2024\/12\/Power-Generation-768x508.png 768w, https:\/\/zerodha.com\/z-connect\/wp-content\/uploads\/2024\/12\/Power-Generation-1536x1015.png 1536w, https:\/\/zerodha.com\/z-connect\/wp-content\/uploads\/2024\/12\/Power-Generation-2048x1354.png 2048w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><\/a><\/p>\n<p><span style=\"font-weight: 400\">So, the big question remains \u201cis growth bouncing back?\u201d<\/span><\/p>\n<p><span style=\"font-weight: 400\">Here\u2019s the thing: the RBI and the MPC have been optimistic, brushing off the 5.4% growth in Q2 as a \u201ctemporary blip.\u201d And to be fair, they might have a point.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400\">The high-frequency data from November does suggest <\/span><i><span style=\"font-weight: 400\">some<\/span><\/i><span style=\"font-weight: 400\"> recovery\u2014particularly in consumption-driven sectors like automobiles and power generation.<\/span><\/p>\n<p><span style=\"font-weight: 400\">But there are still big challenges:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">Government spending still needs to fire on all cylinders, especially capital expenditure.<\/span><\/li>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">Tax revenues need to stabilize, or else growth could take a hit if the government is forced to cut spending.<\/span><\/li>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">Weak industrial data, like cargo throughput, is still a concern and will need close monitoring.<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400\">For now, the MPC\u2019s confidence doesn\u2019t seem completely misplaced. The early data signals a recovery, but the scale \u2014and sustainability \u2014of that recovery is what we need to watch over the next few weeks.<\/span><\/p>\n<p><span style=\"font-weight: 400\">So, is growth back on the menu? The signs are there, but we\u2019ll need a little more data to call it a comeback.<\/span><\/p>\n<hr \/>\n<h3><b>Housing is Having its Own Moment<\/b><\/h3>\n<p><span style=\"font-weight: 400\">Let\u2019s change gears for a moment and talk about something that gives every \u201cfinfluencer\u201d sleepless nights\u2014housing as an investment. You know the drill: stocks are flashy, crypto is cool, but housing? It\u2019s that boring, old-school asset class that somehow keeps chugging along. And guess what? It\u2019s quietly having its moment.<\/span><\/p>\n<p><span style=\"font-weight: 400\">While everyone\u2019s glued to equity markets, the housing market has slipped into a strong phase of its own. Property prices are rising, though you wouldn\u2019t know it from the official indices, which are notoriously bad at capturing the ground reality.<\/span><\/p>\n<p><span style=\"font-weight: 400\">Why? One possible reason is that they don\u2019t account for the cash transactions that still form a significant part of property deals in the Indian market. So while the official data underplays the action, the on-ground reality is far more robust.<\/span><\/p>\n<p><span style=\"font-weight: 400\">So if the official indices don\u2019t do the job well, where\u2019s the proof of booming housing?<\/span><span style=\"font-weight: 400\"><br \/>\n<\/span><span style=\"font-weight: 400\">The answer lies in an unlikely place: the RBI\u2019s Inflation Expectations Survey, conducted across major cities. And this time, the optimism is off the charts.<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">Nearly two-thirds (66.7%) of respondents expect housing prices to accelerate, the highest level of confidence in over a decade.<\/span><\/li>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">On the flip side, only 2.5% expect housing prices to decline, the lowest reading in 10 years.<\/span><\/li>\n<\/ul>\n<p><a href=\"https:\/\/zerodha.com\/z-connect\/wp-content\/uploads\/2024\/12\/Housing-Expectation.png\"><img loading=\"lazy\" decoding=\"async\" class=\"size-large wp-image-399312 aligncenter\" src=\"https:\/\/zerodha.com\/z-connect\/wp-content\/uploads\/2024\/12\/Housing-Expectation-1024x671.png\" alt=\"\" width=\"1024\" height=\"671\" srcset=\"https:\/\/zerodha.com\/z-connect\/wp-content\/uploads\/2024\/12\/Housing-Expectation-1024x671.png 1024w, https:\/\/zerodha.com\/z-connect\/wp-content\/uploads\/2024\/12\/Housing-Expectation-300x197.png 300w, https:\/\/zerodha.com\/z-connect\/wp-content\/uploads\/2024\/12\/Housing-Expectation-768x503.png 768w, https:\/\/zerodha.com\/z-connect\/wp-content\/uploads\/2024\/12\/Housing-Expectation-1536x1006.png 1536w, https:\/\/zerodha.com\/z-connect\/wp-content\/uploads\/2024\/12\/Housing-Expectation-2048x1341.png 2048w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><\/a><\/p>\n<p><span style=\"font-weight: 400\">Clearly, the housing market is defying all the \u201cdon\u2019t buy a home\u201d memes floating around. And this confidence isn\u2019t just sentiment\u2014it\u2019s showing up in the numbers.<\/span><\/p>\n<p><span style=\"font-weight: 400\">It\u2019s no surprise that housing loans have been growing fast over the past year. Back in July 2023, they were rising at 13% year-on-year, but by October 2024, that number had climbed to 18%.<\/span><\/p>\n<p><span style=\"font-weight: 400\">And it\u2019s not just homes\u2014commercial real estate loans have taken off too. Growth has doubled, jumping from 13% to 26% in the same period. Whether it\u2019s buying houses or building malls and offices, everyone\u2019s borrowing, and banks are happy to lend.<\/span><\/p>\n<p><a href=\"https:\/\/zerodha.com\/z-connect\/wp-content\/uploads\/2024\/12\/Housing-Loans.png\"><img loading=\"lazy\" decoding=\"async\" class=\"size-large wp-image-399311 aligncenter\" src=\"https:\/\/zerodha.com\/z-connect\/wp-content\/uploads\/2024\/12\/Housing-Loans-1024x679.png\" alt=\"\" width=\"1024\" height=\"679\" srcset=\"https:\/\/zerodha.com\/z-connect\/wp-content\/uploads\/2024\/12\/Housing-Loans-1024x679.png 1024w, https:\/\/zerodha.com\/z-connect\/wp-content\/uploads\/2024\/12\/Housing-Loans-300x199.png 300w, https:\/\/zerodha.com\/z-connect\/wp-content\/uploads\/2024\/12\/Housing-Loans-768x509.png 768w, https:\/\/zerodha.com\/z-connect\/wp-content\/uploads\/2024\/12\/Housing-Loans-1536x1019.png 1536w, https:\/\/zerodha.com\/z-connect\/wp-content\/uploads\/2024\/12\/Housing-Loans-2048x1359.png 2048w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><\/a><\/p>\n<p><span style=\"font-weight: 400\">You know what makes this even more interesting? All of this is happening while overall bank credit growth for the entire banking sector has actually <\/span><a href=\"https:\/\/thewire.in\/economy\/credit-growth-at-a-dead-end\"><span style=\"font-weight: 400\">decelerated<\/span><\/a><span style=\"font-weight: 400\">. So, the sharp rise in housing and commercial real estate loans is standing out, highlighting the sheer strength and momentum of the property market.<\/span><\/p>\n<p><span style=\"font-weight: 400\">But here\u2019s the flipside: this rise in housing demand isn\u2019t without its consequences. As more people treat homes as just another investment vehicle to park their money, the very purpose of housing gets diluted.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400\">Prices rise, making it a lucrative asset for investors, but at the same time, it pushes homeownership further out of reach for those who actually need a roof over their heads. For families looking to buy a home to live in, what was once a dream is now starting to feel like a luxury.<\/span><\/p>\n<hr \/>\n<p>That\u2019s all for this week, folks!<\/p>\n","protected":false},"excerpt":{"rendered":"<p>RBI stayed put on rates but cut CRR to ease liquidity, because they are still unbothered about slowing growth. But why?<\/p>\n","protected":false},"author":242548,"featured_media":396036,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[532],"tags":[594,854,984,813,202,770,824,704,682],"class_list":["post-399299","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-subtext","tag-gdp","tag-housing","tag-housing-price-index","tag-housing-prices","tag-interest-rates","tag-its-the-economy-stupid","tag-monetary-policy-committee","tag-rbi","tag-tax-collection"],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v23.5 (Yoast SEO v26.6) - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>It&#039;s the economy, stupid! 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