Collectively, the minutes provide rationale for the policy decision of a status quo on rates ( repo rate at 6.50%) while revealing few internal deviations in the thinking within the MPC on the expected economic trajectory and the likely policy response thereof.
Download ReportQuantEco Research || MPC Minutes - A relief with disquiet
The MPC minutes were conspicuously silent on any detailed commentary on the liquidity front. To recall, RBI’s explicit announcement of the usage of OMO sales to curb durable liquidity surplus in its Oct-23 policy review had taken the market participants aback, with bond yields hardening in response. We believe OMO sales will be used as a surrogate for signalling RBI’s caution amidst “ rising crude oil prices, rising US yields and rising US dollar”. This will hopefully obviate the need for a direct/conventional monetary policy action for the time being, thereby securing a buy-in from the doves.
On the macroeconomic front, we believe India is in a state of uneasy calm. RBI’s growth-inflation forecast of 6.5%-5.4% suggests a Goldilocks scenario. However, caution is warranted amidst heightened uncertainty (climate risks, geopolitical spillovers, monetary policy trajectory of systemically important central banks and its impact on domestic financial stability). As such, we continue to maintain our call of a prolonged pause in repo rate (through the course of FY24).