The Monetary Policy Committee minutes of the scheduled meeting held on Apr 8th, show unanimity in maintaining a status quo on the repo rate (at 5.25%), as well as the monetary policy stance at neutral.
Download ReportQuantEco Research || MPC Minutes - Maintaining vigil amidst war and weather risks
With the MPC’s review taking place against the backdrop of the Middle East crisis, it is not surprising that the members alluded to heightened economic uncertainty. However, members also believed that the Indian economy is structurally resilient, with factors like ongoing public capex, improving rural demand, buoyant services exports, and fructification of the newly signed FTAs playing a supportive role. Having said, there is a broader acknowledgement that the growth outlook in FY27 could be vulnerable to climate risks, amidst the emerging likelihood of a deficiency in rainfall during the upcoming southwest monsoon season. On inflation, the members acknowledge the emerging pressures but remained comfortable with the projected likelihood of inflation remaining within the policy band of 2-6%. While most members continue to see the underlying inflation as benign, the firming up of inflation expectations is getting acknowledged by few.
The RBI’s projected downside risk to growth and the upside risk to inflation should create conditions for an extended pause on monetary policy, with repo rate remaining unchanged at 5.25% through FY27. While we continue to expect the next rate move to be a hike rather than a cut, it would be premature to attach a timeline to the rate hike cycle at this juncture amidst heightened uncertainties. In the interim, the central bank would continue to focus on preserving financial stability by curbing adverse global spillover risks.