- Inflation has exceeded the RBI’s tolerance band, GDP growth has slowed and crude and commodities are adding to cost pressure.
- The RBI is expected to maintain its dovish stance and leave all rates unchanged.
New Delhi: the
Before we dive into the projections, we try to break down how the
As for the policy itself, the majority of economists believe that RBI is likely to leave the reverse repo rate unchanged, with a few expecting a 15 to 40 basis point hike. Most economists believe that RBI will prioritize growth over fighting inflation. Also, most think inflation is high, but RBI can still prioritize growth and consider inflation “under control”. However, they believe that RBI will be forced to re-examine inflation expectations as import price pressures dominate. The RBI is also expected to revise GDP forecasts downward due to the demand squeeze and inflation. Economists also expect comments on how other central banks are fighting inflation and the challenge of balancing growth at a critical time when inflation is rising.
The RBI should, however, prepare the markets for a possible change in policy in the coming months, as inflation remains high.
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RBI currently expects FY23 growth to be 7.8%, which may require policy support. In addition, the RBI is expected to revise this forecast downwards. RBI may currently seek to focus on reducing demand compression and establishing a dovish stance may help ease near-term demand as geopolitics take center stage. The RBI has appreciated in the past that different countries are in different phases when it comes to inflation and interest rates and can reiterate this position.