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Below is perspective on RBI MPC Policy by Mr. Nikhil Gupta, Chief Economist at Motilal Oswal Financial Services Ltd.

RBI delivers another 50bp hike

We revise our terminal rate forecast to 5.75-6% from 5.5%

The RBI hikes the repo rate by 50bp to 5.4%, more than the consensus (5.25%) and our expectation (5.15%). Further, there was no change in the stance or any relief in the Governor's statement, indicating a posible pause in the next policy. The rate decision was also taken unanimously today.

The economic  forecasts were also kept unchanged. FY23 inflation/real GDP growth projections are retained at 6.7%/7.2% (with small tweaks in 2Q/3Q inflation). This means that even after total rate hikes of 180bp (including Apr'22), RBI has kept FY23 real GDP growth forecast unchanged since Apr'22, which is perplexing. How will higher interest rate tame inflation without hurting growth? We believe that growth would be 6-6.5% in FY23, while inflation could be lower than RBI forecasts in 2QFY23 (6.9% vs 7.1%) and 1QFY24 (4.6% vs 5%) but higher in 4QFY23 (6.2% vs 5.8%).

Overall, RBI's action and statement today was not as dovish as we expected. Therefore, it is very likely that the terminal rate in this rate hike episode will be higher than our expectations. We, thus, revise it to 5.75-6% from 5.5% expected earlier.

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