In a shock and awe move, the RBI hiked repo rate and CRR by 40 bps and 50 bps respectively
Download ReportRBI Policy - Fast and furious
In a shock and awe move, the RBI hiked repo rate and CRR by 40 bps and 50 bps respectively. While the central bank refrained from citing any changes to its FY23 economic forecasts, the overall assessment and tone suggests the likelihood of upward revision to its inflation estimate in a span of 3-weeks (policy review in Apr-22 saw an upward revision of 120 bps). The urgency of action, its positioning ahead of the FOMC announcement (expected to be aggressive), and the acknowledgement that there could be some sacrifice of near-term growth suggests unambiguous prioritization of inflation management and financial stability objectives. Post this high-speed course correction in a span of 3-months, we now expect the MPC to deliver 60 bps of cumulative repo rate hike in the remaining months of FY23 in a front-loaded manner. This is likely to be accompanied by another 50 bps hike in the CRR, taking our projection on core liquidity to 1.0-1.4% of NDTL by end of FY23 from 1.6-2.0% earlier. We also revise upwards our call on the 10Y g-sec yield to 7.75% (with some upside risk) before end of FY23 from 7.50% earlier. Assuming an overall neutral impact on the currency, we maintain our USDINR call of 78 before the end of FY23.