Comment on RBI Monetary Policy by Radhika Piplani, Chief Economist, Motilal Oswal Financial Services ltd
Below the Comment on RBI Monetary Policy by Radhika Piplani, Chief Economist, Motilal Oswal Financial Services ltd
The RBI raised the repo rate by 25bps to 5.50%, a move the markets had widely expected. More significantly, it shifted its policy stance from neutral to calibrated tightening. That signals the central bank intends to tighten both banking system liquidity and policy rates to contain inflation. We expect a further 75bps of tightening in this cycle, taking the repo rate to 6.25%. This includes a 25bps hike in December, which markets have already largely priced in now.
The RBI was cautious on inflation and raised its full-year forecast to 5.2%, in line with our estimate. Still, it appeared at ease with the growth outlook. It flagged risks from global macro conditions and the effect of higher inflation on rural demand but raised its FY27 GDP growth forecast to 7.1% from 6.7%. We place real GDP growth slightly higher, at 7.2%.
We remain confident in India’s growth story despite the RBI’s note of caution. The private capex cycle appears to be regaining momentum, even with global headwinds and a firmer domestic rate environment. Strong bank credit growth should keep supporting activity across large, medium and small enterprises. Services, and banks in particular, look set for robust growth.
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