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Below Quote on MPC By Kunal Valia, Chief Investment Officer - Listed Investments, Waterfield Advisors

The Reserve Bank of India (RBI) today increased the repo rate by 25 bps. Since May last year, the Reserve Bank has increased the repo rate by 25 bps following the global peers in a synchronised attempt to contain inflation. The Reserve Bank Governor added that the Monetary Policy will remain agile and alert to ongoing inflation dynamics. Further the commentary cited improvement in global economic outlook over last few months as GDP growth improved and inflation tapered in developed markets.

Going forward we expect a pause or at best another 25bps hike by RBI in this tightening cycle. RBI will attempt to assess the impact of past rate hikes on the economy more so than focus purely inflation containment. The risk of over tightening always exists however we believe Growth over Inflation will take centre stage for RBI as world passes through a sluggish growth phase while US and Europe continue with measured quantitative tightening.

Domestically, for FY23, RBI upped its GDP growth estimate to 7% from 6.8% and for FY24 the growth estimate has been pegged at 6.4%, making India one of the fastest growing economies. While CPI Inflation forecast for FY23 has been scaled down to 6.5% from 6.7%, Inflation estimate for next year is 5.3% which is within the RBI Band of 2% to 6%.

The rate hike is going to further add to cost of capital and loans are going to become dearer.

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