+25bps And Not Done Yet

The RBI delivered a +25bps hike as expected. This takes the policy rate to 6.50%, highs back to 2018. There was somewhat of a surprise though in terms of the RBI Governor stating the central bank will remain focused on withdrawing accommodation. Some sell-side analysts had expected the RBI tone to shift to neutral.

• Governor Das stated that sticky inflation pressures remain a key concern for the RBI. The inflation forecast for end March was nudged down to 6.5% from 6.7%. The outlook for the 2024 financial year (ending March 24) was for inflation at 5.3%, so still comfortably in the upper half of the RBI's 2-6% target band.
• The Governor also stated overall financial conditions remained accommodative and that the central bank needs to see decisive evidence that inflation is coming down (presumably before turning to a neutral stance).
• GDP growth was predicted at a resilient 6.4% for the 2024 financial year, above the IMF estimate but just below finance ministry expectations.
• Commentary around the growth backdrop suggests the Governor has a glass half full view and is optimistic around growth momentum. He highlighted risks, particularly in terms of global demand, but given today's outcome doesn't appear too concerned this will derail the Indian growth story.
• The next meeting date is likely is likely to be in April, with a further hike a strong possibility.
• In terms of market reaction. The INR blipped higher, but it wasn't sustained. USD/INR is back to 82.65/70 little changed for the session, versus post RBI lows close to 82.60. Bond yields are higher, with the 10yr at 7.335%, +2.4bps, although we did touch 7.355% earlier. Equities are holding positive at this stage, +0.65/0.70%.