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Dolat Capital Report
Monetary Policy Committee has voted in majority (five out of six) for no change in rate – repo rate at 6.5% and five out of six members voted to remain focused on withdrawal of accommodation stance to ensure inflation progressively aligns to the target.
Although, there is a softening in core inflation (both goods and services), but uncertainties in food prices would continue to weigh on the headline inflation trajectory.
Nimble and flexible management of liquidity conditions would continue to align inflation at the targeted level of 4%.
Our view -
Overall the policy announcements were on expected lines. Concerns around food inflation are reiterated. Once headline inflation sustainably approaches the target by middle of CY24, there may be a compelling case of calibrating policy rates so that real rate does not become very high.
Probable timing for the first rate cut could be either Aug or Oct-24. Overall, we expect 50-75 bps of cuts in FY25.
Risks to rate cut expectation is rise in food and commodity prices.
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