The MPC minutes provide justification for the step down in the quantum of rate hike (each of the previous three policy reviews had seen a 50 bps rate increase)
Download ReportMPC Minutes - Balancing policy trade-offs
The RBI published the MPC minutes of the scheduled policy review in Dec-22 that saw a 35 bps hike in the repo rate. Collectively, the minutes provide justification for the step down in the quantum of rate hike (each of the previous three policy reviews had seen a 50 bps rate increase). At the same time, it also puts the spotlight firmly on the growing divide within the MPC on the expected economic trajectory and the policy response thereof.
Overall, we expect the MPC to step down further on policy aggression and opt for 25 bps, i.e., a lower quantum of rate hike vis-à-vis the 35 bps increase in Dec-22. This would be in line with the ongoing pivot in monetary policy by most key central banks and would signal the return to normal rate changes vs. jumbo rate hikes seen in 2022. We expect the MPC to pause thereafter for impact assessment. Risk to our call emerges from any incremental hawkish bent by the US Fed, and/or delay in dilution of stickiness in India’s Core CPI inflation. In such a case, the tail of small rate hikes could potentially get somewhat elongated beyond Feb-23, taking the terminal repo rate in the current cycle to 6.75%.