While announcing a 25 bps hike at the end of the MPC meeting on Wednesday, RBI Governor Shaktikanta Das displayed a non-committal stance and said he will weigh all incoming data and forecasts to determine appropriate actions and policy stance, going forward.
“As in cricket test matches, the key question is whether the RBI is now set to declare the innings on its rate hike cycle…. we believe the policy arithmetic has changed from ‘de-facto’ policy tightening, to a distinctly data-dependent mode,” said Dr Aurodeep Nandi, India Economist and Vice President at Nomura.
Nomura’s baseline view is that it could be a pause hereon. “The time is ripe for a change of stance to ‘neutral’ from ‘withdrawal of accommodation’,” Nandi said.
Das sounded a bit hawkish when he flagged concerns on high core inflation, projecting headline inflation at 5.3% for FY24, and said monetary policy conditions are still not as tight as pre-pandemic levels.
Sujan Hajra, Chief Economist at Anand Rathi said unless there is an unexpected flare in inflation, he expects the RBI to maintain an unchanged policy rate for the remainder of 2023.
“After front-loaded rate hikes since May 2022, there could be a strong case now to put a brake on monetary tightening. Further rate hikes beyond 6.5% could pose an unwarranted risk to economic growth unless inflationary pressures re-emerge,” said Dhiraj Relli, MD & CEO, Securities.Suvodeep Rakshit, Senior Economist, Kotak Institutional Equities expects the RBI to pause from the next policy onwards with a likely shift in stance to neutral as the liquidity tightens further over March-April.
During the MPC meeting, two members voted for a no increase, compared to just one member in the previous meeting. “This actually signals that if the inflation continues to moderate with some support from global macro, the RBI could signal a change in stance in the next meeting,” said Manish Chowdhury, Head of Research at STOXBOX.
While Sensex was trading 350 points higher, benchmark 10-year government bond yield hardened a bit as the RBI governor refrained from signalling the end of the rate-hiking cycle or changing the policy stance to neutral. “We believe that with today’s hike, RBI is close to its terminal policy rate. We expect RBI to pause here for some time before easing in CY24,”
Mutual Fund said.
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