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Below the perspective of Mr. Mohit Ralhan, Chief Executive Officer, TIW Capital on the RBI MPC Data.

"As expected, the RBI decided to keep the policy rate unchanged while adopting a hawkish tone. The MPC decided to look through higher CPI readings in June. It was mainly because of higher vegetable prices, which the MPC expects to be temporary. It revised the inflation projection for this year to 5.4% from 5.1% earlier. This is because of a 100 bps and 30 bps upward revision in Q2 and Q3 FY 2024 projections.

While risks to the inflation outlook were stated to be evenly balanced, the governor stuck a hawkish tone. Hardening global food prices and higher crude oil prices could pose a risk to containing inflation. Monsson distribution and possible El Nino impact will also be keenly monitored.

The committee decided to maintain its stance of withdrawal of liquidity. Liquidity has gone up because of the return of INR 2000 notes to banks, government expenditure and RBI surplus transfer. Higher liquidity can pose a risk to the inflation outlook. To mop up this, the central bank decided to impose a 10% incremental CRR on banks for any increase in NDTL from May 19th to Jul 28th.

The central bank’s focus is on bringing inflation down to 4%, merely getting it into the tolerance band is not enough. It remains watchful of risks to the inflation trajectory and might act if warranted."

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