On August 22, RBI in its Acuite Ratings note, highlighted that inflation will be a key concern for the Monetary Policy Committee (MPC) members despite a slowdown in the overall price momentum which recorded 7.8 per cent in April.
From the policy perspective, committee members felt that there is a clear need to hike rates acting with global central banks but at the same time, the pace of the residual hike will also depend on the inflation print over the next few months.
The rate action is likely to be accompanied by calibrated withdrawal of money market core liquidity surplus.
Need another 50-60 bps hike
Suman Chowdhury, Chief Analytical Officer, Acuite Ratings & Research, said: “MPC minutes indicate that another 50-60 bps of a rate hike should be expected in the forthcoming policy announcements irrespective of the moderation in the inflation trajectory. The likelihood of the Q2FY23 CPI inflation print dropping to less than 6.0 percent is low, particularly given the pickup in the services sector. What is encouraging to note is the declining inflationary expectations of households which reflects the effectiveness of both the monetary and the fiscal policy actions till now; it will also help in strengthening medium-term growth prospects.”
Better performance under pandemic and Russia-Ukraine war
All MPC members noted that the Indian economy performed better than other global economies under the shades of pandemic and Russia-Ukraine war.
On the growth front, all members agreed that India’s economic recovery has remained broadly resilient despite the slowdown in the global growth scenario.
Bright future growth trajectory
Going forward, the pick-up in SW monsoon after initial hiccups, a strong rebound in the contact-intensive services sector, and robust government expenditure is expected to keep the growth trajectory healthy.