Collectively, the MPC minutes provide justification for the status quo on policy rate (the previous policy review in Feb-23 saw 25 bps rate hike
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While collectively, the minutes provide justification for the status quo on policy rate (the previous policy review in Feb-23 saw 25 bps rate hike), they also highlight few internal differences within the MPC on the expected economic trajectory and the policy response thereof. Despite internal members of the MPC emphasizing on Apr-23 being a standalone pause, we believe monetary policy is now likely to be in a prolonged pause, with repo rate unchanged at 6.50% through FY24. A likely pause by the US Federal Reserve post the expected 25 bps rate hike in May-23 would add credence to this view. Having said so, we empathize with the MPC in their attempt to retain degrees of freedom by refraining from signalling an end to the rate hike cycle amidst lurking upside risks to inflation. We believe any residual tightening would be achieved via gradual scale back of money market liquidity (we project core liquidity surplus to get wiped out by end of FY24 from Rs 1.28 trillion as of Mar 24, 2023).