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Below is quote on Pre RBI Policy By Pankaj Pathak - Fund Manager - Fixed Income, Quantum Mutual Fund

The inflation outlook has deteriorated a lot in the last few months. Based on the recent price actions and the underlying trend across various goods and services, CPI is expected to jump past the RBI’s 6% upper threshold this month and sustain above the 6% mark in most part of 2022. Given the growth is recovering at a steady pace, the MPC can shift its focus to inflation.

We expect a relatively hawkish tilt in this policy. The RBI may look past the Omicron related uncertainty and continue with its policy normalisation.  There is a high possibility of a reverse repo rate hike by 15-20basis points in this policy. It should be followed by another reverse repo rate hike in February next year and repo rate hikes in the latter part of 2022.

The direction of the monetary policy is more or less discounted in the market expectation and the current steep yield curve. Incremental change in the market expectations will be driven by the timing of stance change, the pace of rate hikes and the length of the rate hiking cycle or the terminal repo rate.

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