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Below the perspective on RBI Monetary Policy by Mr. Nikhil Gupta, Chief Economist, MOFSL Group.

MPC keeps interest rates unchanged

Unchanged FY24 inflation forecast a surprise

As expected, the MPC kept interest rates unchanged with the repo rate at 6.5%

* Surprisingly, the inflation projection was kept unchanged at 5.4% for FY24. It means that the massive surge in veggies in Jul-Aug'23 didn't budge full-year CPI forecasts. 2QFY24 was raised a little to 6.4% (from 6.2% earlier), implying a forecast of ~5% YoY in Sep'23, much lower than consensus of ~5.5%.

* Moreover, the press statement was full of upside risks to food inflation, which makes it more difficult to understand. Core inflation is probably expected to be weaker than before but then unchanged growth projection (of 6.5% in FY24) is confusing.

* The mention of OMO sales and the reiteration of 4% as the inflation target in the statement may have spooked bond markets, with 10-yr yield rising to 7.3% (with broadly stable equity and INR).

It is clear, to our mind, that the RBI will not let financial conditions loose anytime soon.

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