“The RBI has responded to both to the new inflation and growth challenges that have emerged due to geopolitical tensions that have manifested themselves in rising commodity prices. While the RBI kept its monetary policy stance unchanged, it restored the policy corridor to pre-pandemic levels and provided a commitment towards a slow reduction of liquidity going forward.
This is clearly a hawkish policy as compared to the February meeting, justified by the inflationary pressures that have emerged over the past month. The upward inflation forecast revision by 120bps to 5.7% for FY23 seems sensible given the broad-based nature of price increases.
Despite the increase in HTM limits, bond yields are likely to go up given the sheer size of the borrowing program for FY23. We expect the 10 years to rise to 7-7.25% in H1 FY23.”