The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) kept the repo rate unchanged for the fourth straight time in today’s meeting. The MPC remained cautious on inflation, which is facing supply-side risks from elevated food prices.
Resilient domestic growth and incomplete transmission of past rate hikes compelled the MPC to retain its 'withdrawal of accommodation' stance.
We foresee a rate cut only in the first quarter of next fiscal, assuming normalising inflation and slowing growth. Uneven distribution of rainfall during the monsoon season, rising crude oil prices and tight global food supplies continue to pose upside risks to inflation this fiscal.
External developments, such as rising global interest rates, a stronger dollar, tightening global financial conditions and volatile foreign capital inflows, require continued vigilance and tilt the balance towards the stance of withdrawing accommodation.
