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Below the Quote on RBI Monetary Policy by Murthy Nagarajan, Head-Fixed Income, Tata Mutual Fund

“The Monetary policy statement reiterated its commitment on withdrawal of accommodation to ensure inflation progressively aligns with the target, while supporting growth. Headline inflation is projected to decline in 2023-24 from its level in 2022-23 but still be above the target of 4 % , warranting continuous vigil. GDP growth is maintained at 6.5 % levels and CPI inflation is projected at 5.1 % versus 5.2 % stated in the April 2023 policy.  RBI,  consumer survey on CPI inflation is projecting 60 basis points fall in inflation expectations from September 2022 levels. However, early results of RBI surveys polled for manufacturing, services and infrastructure firms expect input and output prices to harden. This survey and global development of interest rate hikes by developed countries like Australia and Canada has led to RBI adopting marginal hawkish stance.  Macro-economic factors are favorable like lower commodity prices, lower oil prices.  Food inflation is moderating due to record rabi production . The Rupee is expected to be stable due to lower current account deficit, FII Inflows of 8.2 billion in the current financial year. All these factors could bring current year CPI inflation below 5 % levels against RBI projection of 5.1 % levels.  The 10 year g sec yields is expected to trade in the band of 6.95 to 7.10 in the coming months.”

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