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Take on RBI Policy- Mr. Amar Ambani, Head of Institutional Equities, YES Securities

“RBI unanimously decided to stand pat on the policy rate, positively surprising the markets, though, some market participants did pencil in a pause at the April MPC meeting. The central bank justified the pause, citing global economic headwinds and the rationale that the cumulative rate hikes of 250bps will certainly work with a lag to arrest inflation. However, RBI cautioned that it is open to policy action if inflation persists above the tolerance level. Pertinently, it maintained its stance on the withdrawal of accommodation. On inflation projections, FY24 CPI is projected to average 5.2%, when compared with the earlier estimate of 5.3%. On growth, RBI emphasized the resilience of the economy and sees FY24 GDP expanding at 6.5%, marginally higher than the earlier estimate of 6.4%. We see that RBI is over-optimistic on growth given that consensus projections call for 6% GDP growth for FY24. On the interest rate trajectory, we now clearly see 6.5% as the terminal repo rate and effectively now rule out any rate hikes during this year, notwithstanding the rhetoric from RBI regarding the possibility of further policy action. With India’s real rates projected to remain positive around 130bps for FY24 and emerging global concerns about financial stability, we reckon that RBI will likely sit tight on the policy rates for quite some time.”

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