RBI raised repo rate by 35 bps to 6.25% while retaining its stance of “withdrawal of accommodation”.
Download ReportRBI Policy - Festina lente
In line with expectations, the RBI raised repo rate by 35 bps to 6.25% while retaining its stance of “withdrawal of accommodation”. The central bank lowered its FY23 GDP growth estimate by 20 bps to 6.8% even as it retained its inflation forecast at 6.7%. Although the rate tightening cycle continues, we believe a pause is close as (i) there has been a step down in monetary policy aggression, (ii) incrementally, some MPC members have started exhibiting shades of dovishness, (iii) economy is now operating close to the steady state neutral rate, (iv) record pace of effective monetary tightening calls for an impact assessment amidst changing money market conditions and pickup in household leverage. We now expect the central bank to make haste slowly, opt for another 25 bps hike in Feb-23, and consider a pause thereafter. We stick to our call of 10Y g-sec yield trading in the 7.2-7.6% range in the remainder of FY23 even as we believe the primacy of cues for bond market would now shift towards fiscal policy, with focus on FY24 Union Budget.