RBI MPC minutes provide justification for the step down in the quantum of rate hike
Download ReportQuantEco Research || MPC Minutes - Hawks stay united and firm
The RBI published the MPC minutes of the scheduled policy review in Feb-23 that saw a 25 bps hike in the repo rate. Collectively, the minutes provide justification for the step down in the quantum of rate hike (the previous policy review saw 35 bps rate hike). 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. We expect the MPC hawks to stay united and vote for another 25 bps rate hike in the next policy review in Apr-23. While we expect the MPC to pause on its rate cycle thereafter, the hawkish undertone is likely to be preserved via calibrated tightening of money market liquidity and retention of the ‘withdrawal of accommodation’ stance. This will help MPC retain policy flexibility amidst persistence of domestic core inflation risks and likelihood of a ‘higher for longer’ rate regime in the US. The risk to this call lies on the upside, with the tail of small rate hikes getting somewhat elongated beyond Apr-23.