Forecasting a steeper fall in inflation to the tune of 50 bps lower than previously projected, a Wall Street brokerage sees the central bank leaving the policy rates unchanged at 6.5% in the forthcoming review on June 8.
Analysts at Goldman Sachs India in a report on Friday said the headline inflation will average 5.3% this year, which is within the RBI target of 2% plus or minus 4%, even though they expect some risk to food inflation stemming from crop damages due to unseasonal rains.
It can be noted that retail inflation has declined to an 18-month low of 4.7% in April from 5.7% in March. Moreover, core inflation has also fallen to 5.2% in April.
Going forward, we see average headline inflation at 5.3% in 2023, which is within the RBI target of 2-6%. This means that in Q2 of 2023 (Q1 of FY24) headline inflation is likely to be around 50 bps below the most recent RBI forecast. This will have the RBI keeping the policy repo rate unchanged at 6.50% in the June 8 policy meeting and expect the central bank to remain on hold till the end of the year, the agency said in the report.
Since May 2022, the RBI has increased the repo rates six times continuously to 6.5% from 4.15% but surprised the market in the April review with a pause but maintained that liquidity absorption will continue.
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