RBI maintained status quo on monetary policy rate along with the stance

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Jun 08, 2023

QuantEco Research || RBI Policy - Signalling a prolonged pause

In line with expectations, the RBI maintained status quo on monetary policy rate along with the stance. As such, repo rate remains unchanged at 6.50% with policy stance continuing to focus on “withdrawal of accommodation”. The central bank retained its FY24 GDP growth forecast of 6.5% while revising its CPI inflation marginally lower by 10 bps to 5.1%. The anticipated global economic slowdown, lagged impact of domestic monetary tightening, and emergence of El Nino would provide downside risk to India’s growth prospects. While inflation projection appears reasonable, El Nino’s impact on the south-west monsoon season remains uncertain as of now. We continue to expect a prolonged pause by the MPC through FY24. An extended status quo underscores the goldilocks scenario in which Indian economy is likely to be in FY24. It also appears that the ex-ante real rate of close to 1.6% is something which the MPC is currently comfortable with (assuming a soft landing scenario for the global economy), to eventually align inflation with the 4% target in FY25. We continue to expect 10Y g-sec to trade close to 7.00% levels by Mar-24 with some downside risk.