In line with expectations, the RBI raised repo rate by 25 bps to 6.50%
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In line with expectations, the RBI raised repo rate by 25 bps to 6.50%. The MPC retained its stance of “withdrawal of accommodation”. The central bank provided its forecast for FY24 GDP growth and CPI inflation at 6.4% and 5.3% respectively. We now add another round of 25 bps hike to our policy rate call (to be delivered in Apr-23) as majority of the MPC members show inclination to err on the side of caution to safeguard policy credibility amidst risks from core inflation and a potential reassessment of the Fed rate trajectory post the recent strong labor data from the US. This is unlikely to be accompanied by a shift in policy stance as the MPC would prefer retaining policy flexibility rather than fanning market expectations of a premature pause. We tweak our 10Y g-sec yield forecast to 7.50% for Mar-23 (from 7.40% earlier) and revise up our forecast for Mar-24 to 7.00% from 6.75% earlier.