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Below the perspective on RBI MPC Announcement by Mr. Nikhil Gupta, Chief Economist, Motilal Oswal Financial Services Ltd 

 As widely expected, the RBI kept all key interest rates unchanged with unanimous votes. The stance was also kept unchanged with 5-1 votes (except Prof. J Varma).

-- However, an incremental CRR of 10% of NDTL will be applied on additional NDTL attained between 19th May 2023 and 28th July 2023 by the banking system. The Governor didn't specify the exact amount, but mentioned that it would be more than INR1tn (our calculations suggest ~INR1.3t). This compares with an avg liquidity surplus of INT1.8t in Jul'23. Additional CRR will be reviewed on or before 8th September.

-- Highlighting rising vegetable prices, the RBI has reviews its FY24binflation forecast to 5.4%, from 5.1% earlier. (6.2%, 5.7% and 5.2% in 2Q, 3Q and 4Q respectively, v/s 5.2%, 5.4% and 5.2% earlier). The revision in 2QFY24 is in line with our forecast but RBI appears to be more cautious and see it more sticky than our estimates.

-- FY24 growth forecast was kept unchanged at 6.5% (unachnged at 8%, 6.5%, 6% and 5.7% in the four quarters).

-- Overall, the incremental CRR was unexpected and a reduction in liquidity surplus represents monetary tightening. We expect no further hikes in interest rates in India and also believe that actual inflation in 3Q could be lower than RBI forecasts.