Views on RBI Policy: Mr. Dhiraj Relli, MD &CEO, HDFC Securities
The MPC voted to raise the repo rate by 50 bps taking it to 5.9% as widely expected while remaining focused on the withdrawal of accommodation. A higher rate hike is justified in the backdrop of inflation remaining at elevated levels with the projected trajectory being above RBI’s target during the entire forecast horizon. Economic growth has remained resilient in the face of an adverse global environment. The recent sharp depreciation in the rupee (although well managed compared to other emerging countries) might have weighed on members’ decision in favour of a larger rate hike, addressing external sector imbalance and reducing the interest rate differential. Unchanged inflation forecast at 6.7% for FY23 (and 5% in Q1FY24) is reassuring with a high average crude oil price of US$ 100 per barrel considered in this, providing a cushion. FY23 GDP projection was lowered marginally from 7.2% to 7% for FY23. Overall, it was a prudent policy announcement with no negative surprises which is reflected in the impact on the 10-year yield and stock markets. The next stage of response could be calibrated; we expect the terminal repo rate would be 6.25-6.40% by FY23 end.”
