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Perspective on the Reaction on RBI MPC Announcement By Mr. Mohit Ralhan, Global CEO and Managing Partner, TIW Capital Group.

“Fighting inflation is now the core focus of central banks worldwide, and RBI is no exception. The inflation in India remains higher at about 7% in comparison to the 6% limit set by RBI. In addition, RBI also has to consider capital outflows given the policy rate hikes by the US Fed, which puts pressure on INR. There has been a capital outflow of US$ 13.3 billion in FY-23 till now. RBI can’t allow the spread between the interest rates in India and USA to become uncomfortably narrower, so it has to follow the rate hike by the US Fed to a certain extent. The good news is that the underlying economy remains buoyant, which gives RBI manoeuvring headroom. The 50 bps increase in policy rate should be seen in this context and overall RBI has done extremely well in managing the tightrope walk between growth, inflation and capital outflow. The hike should support INR which is hovering around 80 USD. It is also likely to positively impact equity markets in the short term since it will ease pressure on capital outflow. Bond markets are under pressure globally, which is likely to be the case in 2022 in India. The focus from here on will still be on inflation and the rate hikes by US Fed and there are expected to be further rate hikes by RBI in 2022. While the Indian economy remains among the fastest growing in the world, the risk levels are elevated right now because of the geopolitical environment involving major powers – US, Russia and China, which is also fuelling inflation around the world. Overall, we remain cautious in the markets right now and the remaining months of 2022 will need quite active management of investment portfolio.”

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