Comment on RBI Monetary Policy by Sumit Singhania, Head of Research- Bajaj Broking
Below the Comment on RBI Monetary Policy by Sumit Singhania, Head of Research- Bajaj Broking
The RBI's 25 bps hike to 5.50% is defensible, and the shift to "calibrated tightening" matters more than the rate itself because it rules out near-term cuts. With CPI rising to 4.8% in August and projected at 6.0% in Q3, at the upper edge of the tolerance band, acting now makes sense. Growth projected at 7.1% gives the economy room to absorb it. The global backdrop adds to the case. The US Fed hiked in September, and markets still price a further hike by December, with the October 28 FOMC a live risk. That keeps pressure on the rupee and limits the RBI's room to stay accommodative.
The hike was unanimous, but the 4-2 vote on stance shows two members preferred to keep flexibility rather than commit to a tightening bias. Much of the inflation is supply-driven (monsoon, El Niño, energy), and rate hikes do little against it, so the real aim is to prevent second-round effects. Core inflation excluding precious metals is just 2.9%, which suggests underlying pressures are still contained. If that holds and price pressures don't broaden, the RBI would do best to pause at 5.50% in December, though a further Fed hike could test that call.
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