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Below is Pre-view on RBI Monetary Policy (November, 22) by Deepak Agarwal, CIO (Debt), Kotak Mahindra Asset Management Company

“The Reserve Bank has announced an unscheduled meeting of the Monetary Policy Committee on November 3rd 2022. The meeting has been called under 45ZN of the RBI Act and Regulation 7 of the MPC regulations. The 45ZN act says if the MPC fails to get to the mandated inflation figure of 2 - 6 percent, then, it will call the meeting and write a report to the government explaining reason for failure to achieve the inflation target, remedial actions proposed to be taken and an estimated time period within which the inflation target shall be achieved.

September CPI inflation came in at 7.41%yoy. Inflation seems to have peaked and likely to trend lower from current levels and come within the MPC inflation band latest by Q1FY 24. RBI has hiked repo rate by 190 bps since April 22 in order to ensure positive real rates and bring down inflation within the mandated band. MPC voted 5:1 to increase rates by 50 bps in the September 2022. Dr Goyal voted only for 35 bps rate increase. The MPC minutes indicated Professor Varma’s assessment that the MPC should pause and take stock after the Sep 22 policy.

Even though the MPC is next day after FED meeting, where is FED is likely to raise rates by 75 bps, we believe the Nov 3^rd MPC meeting is to discuss report to government under section 45ZN and we assign a low probability of rate action in the said meeting.”

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