– Ms. Rajni Thakur, Chief Economist, RBL Bank
“RBI continues on its exemplary act of balancing the contrasting pulls of its key objectives viz; price stability, growth support and easy financial conditions. While the key policy rates remain unchanged, restoration of LAF corridor to 25 bps below and above Repo rate, has effectively pushed up the short term rates by 40-50 bps. Similarly, while the monetary policy stance continues to be ‘accommodative’, the accompanying statement mentions its focus on ‘withdrawal of accommodation’ to match up with rising price pressures. Combined with substantial upwards revision of inflation forecasts for the current fiscal year to 5.7%, RBI has, to a large extent, re-aligned its policy to evolving market conditions and also signalled rate hikes over the year. Given the current macro dynamics, MPC announcements were a tight rope walk that has delivered on re-calibrating growth-inflation projections, signalling impeding hikes and still buying time to hike lending rates. With multiple risks on both inflation and growth trajectory in the current fiscal year, we expect two reluctant rate hikes, most likely starting in second quarter. Combined with gradual and calibrated liquidity withdrawal, we nevertheless, expect financing conditions to still remain easy over the full year, to support economic activities”.