The RBI raised the repo rate by 25bps and kept its stance unchanged at “withdrawal of accommodation” on expected lines. The policy tone was hawkish as the RBI recognised that they are still away from achieving their objective of durable disinflation. In terms of the inflation risks, the RBI highlighted the elevated nature of core inflation and continuing global risks that could push up domestic inflation going forward. On growth, the RBI pegged GDP growth at 6.4% in FY24, higher than consensus expectations – sounding optimistic about the growth momentum. Going forward, the central bank is likely to become more data-dependent, and this does not rule out another rate hike in the upcoming policy.
On liquidity, the RBI recognised that there might be some reduction in liquidity surplus as the facilities provided during the pandemic end while providing reassurance that they are likely to balance these out through various instruments available at their disposable. Despite the comments on liquidity conditions remaining accommodative compared to pre-pandemic levels – signalling a somewhat hawkish tone – we expect the RBI to maintain adequate liquidity surplus to remain growth supportive going forward.