RBI Monetary Policy Review - Discordant Messaging Presages Off-Policy Actions: Systematix

Systematix Research Report

Reserve Bank of India continues to be on the path of withdrawal of accommodation with an indication of a peaking rate hike cycle. It kept the repo rate unchanged at 6.5%. However, there seems to be an increasing sense of discordant messaging from the RBI, where-

1. a dissonant medley of 'withdrawal of accommodation', “decoupled India” and 'fear of global risks' coalesce to reflect lack of conviction on the growth narrative,

2. though RBI’s growth outlook remains sanguine, reality seems to be defiant leading to the rising contradictions between the reality and the outlook, and

3. the peculiar combination of a modest household consumption growth, amid weak household income and savings and high food inflation.

Overall, we think that RBI is shifting focus from monetary policy action towards financial stability concerns and therefore expect RBI to implement further off-policy regulatory tightening to limit its concerns on contagion risks.

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