With a fall in commodity prices and some early signs of inflation coming down, the RBI may choose to slow down the pace of rate hikes. We expect the RBI to deliver a lower rate hike of 25 basis points in the upcoming meeting.
Monetary policy often works with a long lag. The impact of past rate hikes and liquidity tightening measures is yet to be seen. Thus, there is a risk of over-tightening the monetary policy and hurting growth recovery at a nascent stage.
There is a strong case for the RBI to take a pause and allow the past rate hikes to work through the real economy.
We expect the RBI to be more data-dependent and reactive going forward than raising rates pre-emptively.
The bond market is already positioned for a softer tone and a lower rate hike from the RBI. The market will look for cues on how much more the RBI is willing to hike and for how long they are going to stay there.
No comments:
Post a Comment