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Below is RBI Monetary Policy Reaction by Mr. Amar Ambani, Group President & Head  of Institutional Equities, YES Securities.

“RBI delivered a 25bps rate hike, quite expected by the markets, though the decision was not unanimous, with 2 members of the MPC dissenting on the repo rate hike. The central bank maintained its policy stance on the withdrawal of accommodation, deviating from the market expectations of a change in stance. RBI emphasized that further monetary policy action is warranted given that core inflation remains sticky and though headline inflation has moderated, it will continue to remain above the 4% target. RBI projections state an average CPI of 5.7% for Q4 and 6.5% for FY23. For FY24, RBI sees inflation averaging 5.3%, versus the market consensus of 5%. On growth, RBI portrayed a resilient economy, with GDP growth projections for FY23 upgraded to 7% from the prior estimate of 6.8%. For FY24, RBI remains optimistic at 6.4% versus the market consensus of 6%.

Although real rates have turned positive and inflation has moderated, RBI is symbolically choosing price stability over growth, taking a leaf out of the books of other major central banks, wherein they have articulated the need and intent to deliver further rate hikes. It seems to us that RBI wants to keep its cards close to the chest and will not like to convey a change in stance unless global central banks like Fed portend a terminal interest rate.  Notwithstanding RBI’s relatively hawkish stance, we do not see RBI delivering another rate hike in April. After the 25bps hike today, we expect a long pause from the RBI to allow for the cumulative 250 bps increase in the repo rate to filter through the economy. Needless to mention, interest rate hikes work with a lag effect of 2-3 quarters, so its full impact on growth has yet to be seen..”

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