India’s M3 money supply grew at a slower-than-expected pace of 10.4% in the fortnight ending November 1st, 2024. This is lower than the previous fortnight’s growth of 11.2% and market expectations. M3 money supply is a broad measure of the total money circulating in the economy, including currency, deposits, and other liquid instruments.
1 This deceleration in M3 growth could signal a cooling down of economic activity and potentially easing inflationary pressures. The Reserve Bank of India (RBI) closely monitors M3 growth as part of its monetary policy framework to maintain price stability and support sustainable economic growth.
Key Insights:
- Slowdown in Money Supply Growth: The lower-than-expected M3 growth indicates a potential slowdown in the pace of economic activity. This could be due to various factors, including reduced credit demand, increased savings, or a tightening of financial conditions.
- Potential Impact on Inflation: Slower money supply growth can help curb inflationary pressures as less money is chasing the same amount of goods and services. This could support the RBI’s efforts to manage inflation within its target range.
- Implications for RBI Policy: The slowdown in M3 growth may provide the RBI with more room to maintain its accommodative monetary policy stance to support economic recovery. However, the central bank will need to carefully balance this against the need to manage inflation.
Investment Implications:
- Fixed Income: Slower money supply growth could lead to lower interest rates, making fixed-income securities more attractive.
- Equity Market: A potential slowdown in economic activity might impact corporate earnings growth, leading to a cautious outlook for the equity market. Sectors sensitive to interest rates, such as banking and real estate, could be particularly affected.
- Currency: A slowdown in economic activity could put downward pressure on the Indian Rupee (INR).
