In its mid-quarter monetary policy review, the RBI has left the repo rate unchanged as expected but cut the CRR by 25 bps, largely in order to pre-empt the liquidity tightness that might arise due to seasonal factors. More importantly, the RBI has acknowledged the favourable impact of the Govt’s actions on growth-inflation dynamics and accordingly, the policy guidance has been less hawkish than in the past. The central bank is now talking about supporting growth while focusing on inflation compared to its earlier stance of fighting inflation even at the cost of growth.
Going ahead, the likelihood of a rate cut in Oct policy seems to be low as inflation is on a rising trajectory although if the Govt undertakes further actions in coming weeks, it can move RBI’s hand. However, we do expect monetary easing of ~50bps in Dec-Mar period.
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