RBI Monetary Policy Review – A Firm Hand: IDFC Research


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The Reserve Bank of India /Monetary Policy Committee raised repo rate by 35 basis points to 6.25%, as was widely expected. There was one dissent on this; from Professor Varma who preferred no hike. The stance was continued as ‘withdrawal of accommodation’ with two dissents; from Dr. Goyal and Professor Varma.

The assessment was somewhat more hawkish than general market expectation.

We elaborate upon our impressions below:

On rate hikes a general sense of RBI commentary for most of the year has been that India’s forecasted inflation trajectory was actually quite benign, and that growth had required extra-ordinary loose monetary conditions till the start of this year.

Then the war broke and ‘upset the applecart’ so to speak. But by now significant parts of the war-led commodity shock, most notably in crude oil and metals, have unwound.

However, the Governor’s commentary was focussed on the persistence of core inflation and the need to break this. Indeed the MPC notes the need to ‘keep inflation expectations anchored, break the core inflation persistence and contain second-round effects, so as to strengthen medium-term growth prospects’.

More generally, the potential salutary effects on output prices from correction in industrial input prices and supply chain pressures are noted.

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