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Systematix Research Report
Reserve Bank of India's decision to keep the policy repo rate unchanged at 6.5% came as a surprise against the consensus and our expectations of a 25 basis points hike to 6.75%.
The monetary policy stance remains accommodative, with a withdrawal bias. The governor emphasised that the fight against inflation is far from over and hence, the pause was only for this meeting.
The justification for this transient pause was that the central bank wants to assess the impact of the past rate hikes on inflation before taking additional tightening measures.
In the current cycle, while the repo rate has been hiked by 250 bp to 6.5% the effective tightening has been larger; the average overnight call rate increased from 3.32% to 6.52% in March 2023. The economic and financial stability outlook described by the governor is that of resilience and strength emanating from domestic impulses amid the intensifying global headwinds, which gives an impression of de-coupling, a thesis that has been debunked long ago.
The real gross domestic product growth projection for FY23E is kept unchanged at 7% and is expected to decelerate to 6.5% in FY24E comprising 7.8% in Q1, 6.2% in Q2, 6.1% in Q3, and 5.9% in Q4.
On inflation, RBI expects gradual easing, but upside risk remains due to the possible impact of weather anomalies on food supplies.
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