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Below the Quote on On RBI Monetary Policy Committee Announcement by Ms. Madhavi Arora, Lead Economist, Emkay Global Financial Services

The fluidity of global Goldilocks narratives, financial markets turmoil and policy repricing’s found little space in the Governor's speech, thanks to recent easing volatility in the financial markets.

However, noisy food inflation back home, and a still-elusive 4% inflation target formed the base for the RBI decision making. Understandably, persistent food inflation (with sporadic volatility in vegetables and continued supply tightness in pulses), averaging at 8% in the past 12 months, has prevented durable disinflation.

The Governor continued to stress on the spill over risks emanating from higher food prices to generalised inflation

While the MPC has been wary of spill over risks, we do not see core inflation moving above 4% till end-CY24 and averaging at sub-3.75% in FY25. We maintain that growth is sub-par in India and do not subscribe to the RBI’s estimate of FY25 growth at 7.2% (Emkay: 6.5%). Weaker demand dynamics will keep pressuring core inflation. Besides, lower input prices ahead may help ease some pressure on output prices as well.

But the RBI is likely to continue to stress being 'actively disinflationary', and be on wait-and-watch mode for assessing multiple macro forces - unless, of course, global winds force them to move focus to financial stability over the 4% inflation mandate.

We understand that shifting debates on global narratives require the RBI to be flexible. However, the volatility in India FX and rates has been manageable amid the recent global market turmoils, giving flexibility to the RBI to stay focussed on domestic inflation and financial sector risk management.

We maintain Fed's pivot will precede and impact RBI's change in stance and rate action. Besides, staying relatively hawkish and highlighting the still-elusive durable 4% inflation target will only create unwanted INR carry, at a time when the RBI is still saddled with managing the problem of plenty, especially in H1FY25

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